Chapter Four

TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
A. Employer-employee relationship
1. Four-fold test
2. Kinds of employment
a. Probationary
b. Regular
c. Project employment
d. Seasonal
e. Casual
f. Fixed-term
3. Job contracting
a. Articles 106 to 109 of the Labor Code
b. Department Order No. 18-A
c. Department Circular No. 01-12
d. Effects of Labor-Only Contracting
e. Trilateral relationship in job contracting
A.
EMPLOYER-EMPLOYEE RELATIONSHIP

1.

Four-Fold Test
1. FOUR-FOLD TEST.
a. Selection and engagement of the employee;
b. Payment of wages or salaries;
c. Exercise of the power of dismissal; or
d. Exercise of the power to control the employee‟ s conduct.1
These tests, however, are not fool-proof as they admit of exceptions.
2. CONTROL TEST, THE CONTROLLING TEST.
The “control test” is the controlling test. It addresses the issue of whether the employer
controls or has reserved the right to control the employee not only as to the result of the work to be
done but also as to the means and methods by which the same is to be accomplished.2
3. SOME PRINCIPLES ON EMPLOYER-EMPLOYEE RELATIONSHIP.
a. There is no uniform test prescribed by law or jurisprudence to determine the existence of
employer-employee relationship.3
b. The existence of the employer-employee relationship is essential in that it comprises as the
jurisdictional basis for recovery under the law. Only cases arising from said relationship
are cognizable by the labor courts.4
c. The relationship of employer and employee is contractual in nature. It may be an oral or
written contract. A written contract is not necessary for the creation and validity of the
relationship.5
d. Stipulation in a contract is not controlling in determining existence of the relationship. The
employment status of a person is defined and prescribed by law and not by what the parties
say it should be.6
e. The mode of paying the salary or compensation of a worker does not preclude existence of
employer-employee relationship. Thus, payment by commission7 or on a piece-rate
 basis8 or on a “no work, no pay” 9 basis does not affect existence of employment
relationship.
f. Retainer fee arrangement does not give rise to employment relationship.10
4. CASES WHERE EMPLOYMENT RELATIONSHIP EXISTS.
Following the right-of-control test, the Supreme Court has found that employment
relationship exists in the following cases:
a. Dispatchers of a transportation company.11
b. Persons paid on “boundary system” basis in relation to the transport operator such as
jeepney drivers and conductors,12 taxi drivers,13auto-calesa driver,14 and bus driver.15 Under
the “boundary system,” the relationship between the driver and conductor of a bus and the
owner thereof is not that of lessee and lessor but that of employee and employer.16
c. Musicians employed by a company producing motion pictures for purposes of making
music recordings for title music, background music, musical numbers, finale music and
other forms of music without which a motion picture is not complete.17
d. Fishermen-crew who rendered services in various capacities (patron/pilot, master
fisherman, second fisherman, chief engineer, and fisherman) aboard the fishing vessels of
a company engaged in “trawl” fishing and whose compensation was paid in cash on
percent commission basis.18
e. Stevedores, although supplied to the company by the labor organization composed of
various labor unions, are employees of the company.19
f. Resident physicians. - There is employer-employee relationship between resident physicians
and the training hospitals unless:
1. there is a training agreement between them; and
2. the training program is duly accredited or approved by the appropriate government
agency.20
g. Employees of cooperatives, but not its members unless the members are also employees
thereof.21
h. Insurance agent.22
2.
KINDS OF EMPLOYMENT
1. FIVE (5) GENERAL CLASSIFICATIONS OF EMPLOYMENT.
There are five (5) classifications of employment.23 Article 280 provides for four (4) kinds of
employees,24 to wit:
(a) Regularemployees referring to those who have been “engaged to perform activities which
are usually necessary or desirable in the usual business or trade of the employer”;
(b) Project employees referring to those “whose employment has been fixed for a specific
project or undertaking, the completion or termination of which has been determined at the
time of the engagement of the employee”;
(c) Seasonal employees referring to those who work or perform services which are seasonal in
nature, and the employment is for the duration of the season; and
(d) Casualemployees referring to those who are not regular, project, or seasonal employees.25
A fifth one, fixed-term employees, must be added to the above enumeration.26 This, however,
is not provided in the Labor Code but recognized only in jurisprudence.27
2. CLASSIFICATION OF EMPLOYMENT AS TO NATURE OF WORK.
According to the 2013 case ofGMA Network, Inc. v. Pabriga, 28 pursuant to Article 280,
another classification may be formed in accordance with the nature of employment, to wit:
(1) Employees performing activities which are usually necessary or desirable in the
employer‟ s usual business or trade can either be regular, project or seasonal employees;
while
 (2) Those performing activities not usually necessary or desirable in the employer‟ s usual
business or trade are, as a general rule, casualemployees.
The reason for this distinction may not be readily comprehensible to those who have not
carefully studied these provisions; only employers who constantly need the specified tasks to be
performed can be justifiably charged to uphold the constitutionally protected security of tenure of the
corresponding workers. The consequence of the distinction is found in Article 279 of the Labor
Code.29 With respect to the activities of projectemployees, they may or may not be usually necessary
or desirable in the usual business or trade of the employer, as discussed by the Court in some cases.30
a.
PROBATIONARY EMPLOYMENT31
1. NATURE OF PROBATIONARY EMPLOYMENT.
A probationary employee is one who, for a given period of time, is on observation, evaluation
and trial by an employer during which the employer determines whether or not he is qualified for
permanent employment. During the probationary period, the employer is given the opportunity to
observe the skill, competence, attitude and fitness of the probationary employee while the latter seeks
to prove to the employer that he has the qualifications to meet the reasonable standards for permanent
employment.32
2. PROBATIONARY PERIOD.
As a general rule, it should not exceed six (6) months from the date the employee started
working.33 One becomes a regular employee upon completion of his six-month period of probation.34
3. EXCEPTIONS.
The 6-month period provided in Article 281 admits of certain exceptions such as:
1. When the employer and the employee agree on a shorter or longer period;
2. When the nature of work to be performed by the employee requires a longer period;
3. When a longer period is required and established by company policy.
If not one of the exceptional circumstances above is proven, the employee whose employment
exceeds six (6) months is undoubtedly a regular employee.35
Buiser v. Hon. Leogardo. 36 - The probationary period of 18 months was considered valid in
the light of the nature of employment of the probationary employees. The company here is engaged in
the publication of advertisements in PLDT‟ s Yellow Pages Telephone Directories. Solicited ads are
published a year after the sale has been made and only then can the company be able to evaluate the
efficiency, conduct and selling ability of the sales representatives, the evaluation being based on the
published ads.
4. PROBATIONARY PERIOD, HOW RECKONED AND COMPUTED.
The 6-month probationary period should be reckoned “from the date of appointment up to
the same calendar date of the 6 month following.” 37
th

5. PROBATIONARY EMPLOYMENT VS. FIXED-TERM EMPLOYMENT.

The intention of the parties (employer and employee) is material. Both involve fixed period in terms
of duration of employment. However, inprobationary employment, the parties intend to make their
relationship regular after the lapse of the period. In fixed-term employment, no such intention exists and the
relationship automatically terminates at the expiration of the period.
A probationary period cannot be stipulated within the fixed period of employment.38
6. SOME PRINCIPLES ON PROBATIONARY EMPLOYMENT.
The probationary period may be extended but only upon the mutual agreement by the employer
and the probationary employee.39
Purpose and not length of the probationary period is material. 40
An employee who is allowed to work after a probationary period is considered a regular
employee.41
Employment is deemed regular if the employment contract has no stipulation on probationary
period.42
Employee is deemed regular absent any contract to prove probationary employment.43
Repetitive rehiring of a probationary employee means he has become a regular employee.44
 Regular workers of previous owner of business may be hired as probationary employees of new
owner.45
Probationary employment cannot be ad infinitum.46
7. TERMINATION OF PROBATIONARY EMPLOYMENT.
a. Security of tenure of probationary employees.
Within the limited legal 6-month probationary period, probationary employees are entitled to
security of tenure notwithstanding their limited tenure and non-permanent status.47 Hence, during their
probationary employment, they cannot be dismissed except for just or authorized cause or when he
fails to qualify as a regular employee. 48
b. Grounds to terminate probationary employment.
Under Article 281, a probationary employee may be terminated only on three (3) grounds, to
wit:
1. For a just cause; or
2. For authorized cause; or
3. When the probationary employee fails to qualify as a regular employee in accordance with
reasonable standards made known by the employer to the employee at the start of the
employment.49
c. Some principles on termination of employment of probationary employees.
1. Procedural due process is required only in the case of the first and second grounds
(dismissal due to just or authorized cause) . The thirdground (failure to qualify as a
regular employee) does not require notice and hearing. Due process of law for
the third ground consists of making the reasonable standards expected of the employee
during his probationary employment known to him at the time of his engagement.50
2. Termination to be valid must be done prior to lapse of probationary period.51
3. Termination a few days after lapse of probationary period cannot be done without due
process as he has already become a regular employee by that time.52
4. Peremptory and arbitrary termination of probationary employees is not allowed.53
5. No obligation to pay unexpired portion in case of valid termination prior to lapse of
probationary period.54
6. Agabon doctrine55 applies if dismissal of probationary employee for a just cause is without
due process. Thus, the termination is considered legal but the employee will be awarded an
indemnity in the form of nominal damages of P30,000.00.56
7. Jaka doctrine57 applies if dismissal of probationary employee for an authorized cause is
without due process. The amount of indemnity is higher: P50,000.00.
b.
REGULAR EMPLOYMENT58
1. TWO (2) KINDS OF REGULAR EMPLOYEES.
The regular employees under Article 280 consist of the following:
(1) Those engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer; and
(2) Those who have rendered at least one (1) year of service, whether such service is
continuous or broken, with respect to the activity in which they are employed.59
2. THREE (3) WAYS OF ATTAINING REGULAR EMPLOYMENT.
Under the Labor Code, regular employment may be attained in either of three (3) ways,
namely:
1. By nature of work. - The employment is deemed regular when the employee has been
engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer.60
2. By period of service. - The employment is reckoned as regular when the employee has
rendered at least one (1) year of service, whether such service is continuous or broken,
 with respect to the activity in which he is employed and his employment shall continue
while such activity exists.61
3. By probationary employment. - The employment is considered regular when the
employee is allowed to work after a probationary period.62
3. SOME PRINCIPLES ON REGULAR EMPLOYMENT.
a. Law presumes regularity of employment. The presumption having been made by the
law itself, it follows that an employee is deemed regular by operation of law the moment
the fact is established that the nature of his work is directly related to the principal business
of the employer.63
b. The phrase “to perform activities which are usually necessary or desirable in the
usual business or trade of the employer” includes performance of peripheral jobs
indirectly related to the principal business of employer.64
c. No declaration or appointment paper necessary to make one a regular employee.65
d. Fixed-period employment is the exception to the rule that an employee becomes regular
by reason of nature of work or period of employment66 because in fixed-period
employment, these factors are not decisive indicators of regularity of employment. The
decisive determinant is the day certain agreed upon by the parties for the commencement
and termination of their employment relationship, a day certain being understood to be
“that which must necessarily come, although it may not be known when. ”67
e. Written or oral agreement is immaterial to determine regularity of employment. The
phrase “the provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties”in Article 280 simply means that
irrespective of any written or oral agreement stating that the employment is not regular,
once the fact is established that the employee has been engaged to perform activities which
are usually necessary or desirable in the usual business or trade of the employer, his
employment is regular by reason of its nature.68
f. However, there is a need to execute a written employment contract if the intention is to
stipulate on such other kinds of employment such as probationary, project, seasonal, casual
or fixed-term, as the case may be, because the absence thereof will make the relationship
that of regular employment. It is only by proving the terms and conditions of the contract
that the general presumption that the relationship is regular in nature would be effectively
dispelled. Jurisprudence abounds where the non-presentation of the written contract was
held as evidence that the status of employment is not what it purports to be, that is,
probationary, project, seasonal, casual or fixed-term but regular employment.
g. The doctrine of adhesion69 applies to employment contracts.70 It must be emphasized,
however, that the rule on the interpretation or construction of contracts of adhesion does
not apply when the stipulations contained in a contract are not obscure or
ambiguous.71Besides, a contract of adhesion is not prohibited per se. 72
h. The act of hiring and re-hiring the employees over a period of time without considering
them as regular employees evidences bad faith on the part of the employer.73
i. Manner and method of payment of wage or salary is immaterial to the issue of whether
the employee is regular or not.74
c.
PROJECT EMPLOYMENT75
1. CONCEPT.
Project employees are those hired:
1. for a specific project or undertaking; and
2. the completion or termination of such project has been determined at the time of their
engagement.76
2. TWO (2) CATEGORIES OF PROJECT EMPLOYEES.
 In order to safeguard the rights of workers against the arbitrary use of the word “project” to
prevent employees from attaining the status of regular employees, employers claiming that their
workers are project employees should not only prove that the duration and scope of the employment
was specified at the time they were engaged, but also that there was indeed a “project. ”77
The two (2) categories of project employees on the basis of “project” for which they have been
engaged to perform are as follows:
(1) A particular job or undertaking that is within the regular or usual business of the
employer company, but which is distinct and separate, and identifiable as such, from
the other undertakings of the company; or
(2) A particular job or undertaking that is not within the regular business of the
corporation.78
In the realm of business and industry, we note that „project‟ could refer to one or
the other of at least two (2) distinguishable types of activities . Firstly, aproject
could refer to a particular job or undertaking that is within the regular or usual
business of the employer company, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or
undertaking begins and ends at determined or determinable times. The typical example
of this first type of project is a particular construction job or project of a construction
company. A construction company ordinarily carries out two or more [distinct]
identifiable construction projects: e.g. , a twenty-five-storey hotel in Makati; a
residential condominium building in Baguio City; and a domestic air terminal in Iloilo City.
Employees who are hired for the carrying out of one of these separate projects, the scope
and duration of which has been determined and made known to the employees at the
time of employment, are properly treated as „project employees,‟ and their services may be
lawfully terminated at completion of the project.
The term „project‟ could also refer to, secondly , a particular job or undertaking
that is not within the regular business of the corporation. Such a job or undertaking
must also be identifiably separate and distinct from the ordinary or regular business
operations of the employer. The job or undertaking also begins and ends at determined
or determinable times.79
3. LITMUS TEST OF PROJECT EMPLOYMENT.
The litmus test of project employment, as distinguished from regular employment, is whether
or not the project employees were assigned to carry out a specific project or undertaking, the duration
and scope of which were specified at the time the employees were engaged for that project.80 A true
project employee should be assigned to a project which begins and ends at determined or determinable
times and be informed thereof at the time of hiring.81
4. PROJECT EMPLOYMENT VS. REGULAR EMPLOYMENT.
1. The services of project employees are coterminous with the project or any phase thereof
and may be terminated upon the end or completion of the project or phase thereof for which they were
hired. Regular employees, in contrast, enjoy security of tenure and are legally entitled to remain in the
service of their employer and to hold on to their work or position until their services are terminated by
any of the modes of termination of service recognized under the Labor Code.82
2. Due process likewise varies. In case of project employment, if the termination is brought about by
the completion of the project or any phase thereof, due process is complied with even if no prior notice of
termination is served. For termination of regular employment, the due process required would necessarily
depend on the ground cited. If the termination is for just cause, due process applicable to Article 282
terminations applies. If due to authorized cause, due process applicable to Articles 283 and 284 terminations
should be followed.
5. INDICATORS OF PROJECT EMPLOYMENT.
a. 6 indicators of project employment.
Either one or more of the following circumstances, among others, may be considered as
indicator/s that an employee is a project employee:
1. The duration of the specific/identified undertaking for which the worker is engaged is
reasonably determinable.
 2. Such duration, as well as the specific work/service to be performed, are defined in
an employment agreement and is made clear to the employee at the time of hiring.
3. The work/service performed by the employee is in connection with the particular project or
undertaking for which he is engaged.
4. The employee, while not employed and awaiting engagement, is free to offer his services to
any other employer.
5. The termination of his employment in the particular project/undertaking is reported to the
Regional Office of the Department of Labor and Employment having jurisdiction over the
workplace, within thirty (30) days following the date of his separation from work, using
the prescribed form on employees‟ terminations or dismissals or suspensions.
6. An undertaking in the employment contract by the employer to pay completion bonus to the
project employee as practiced by most construction companies.83
b. Some principles on project employment.
1. Project employees should be informed of their status as such at inception of the
employment relationship.84
2. There must be a written contract of project employment stating the duration of the project
employment as well as the particular work or service to be performed.85
3. A written project employment contract is an indispensable requirement.86
4. Failure to present contract of project employment means that employees are regular.87
5. Regular employment is inconsistent with project employment. In other words, a regular
employee cannot be at the same time a project employee.88
6. Intervals in employment contracts indicate project employment.89
7. Continuous, as opposed to intermittent, rehiring shows that employee is regular.90
8. “Project-to-project” basis of employment is valid.91
9. Length of service is not a controlling determinant of employment tenure.92
10. Project employment should not be confused with fixed-term employment to justify
continuous rehiring of so-called project employees.93
c. “Work pool” principle.
As a general rule, employers may or may not form a “work pool.” A “work pool” refers to a
group of workers from which an employer like a construction company draws the workers it deploys or
assigns to its various projects or any phase/s thereof. Members of a “work pool” may consist of:
1. Non-project employees or employees for an indefinite period. If they are employed in a
particular project, the completion of the project or of any phase thereof will not mean
severance of employer-employee relationship.
2. Project employees. These workers in the work pool who are employed in a particular
project or in any phase thereof are considered as such if they are free to leave anytime and
offer their services to other employers.94
Mere membership in a “work pool” does not result in the workers‟ becoming regular
employees by reason of that fact alone.95 However, under established jurisprudence, a project employee
who is a member of a “work pool,” may attain regular status as a project employee. This kind of
employee is known as “regular project employee.”
6. TERMINATION OF PROJECT EMPLOYMENT.
1. Project employees enjoy security of tenure only during the term of their project
employment.96
2. If the project or the phase thereof on which the project employee is working has not yet been
completed and his services are terminated without just or authorized cause and there is no
showing that his services are unsatisfactory, such termination is considered illegal, hence,
the project employee is entitled to reinstatement to his former position or substantially
equivalent position. If the reinstatement is no longer possible, the employee is entitled to
his salaries for the unexpired portion of the agreement.97
3. Project employees are not, by law, entitled to separation pay if their services are terminated
as a result of the completion of the project or any phase thereof in which they are
employed. The reason is that their services are deemed coterminous with the project or
phase thereof.98
 4. Project employees have presumably become regular employees if they are allowed to work
beyond the completion of the project or any phase thereof to which they were assigned or
after the “day certain” which they and their employer have mutually agreed for its
completion. Having become regular employees, they can no longer be terminated on the
basis of the completion of the project or any phase thereof to which they were deployed.99
5. Advance notice of termination of project employment is not required.100
6. Report to DOLE on termination of project employees is required.101 Report should be made
after every completion of project or phase thereof.102
7. Payment of completion bonus is an indicator of project employment.103
8. Burden of proof in termination of project employment rests on the employer.104

d.
SEASONAL EMPLOYMENT105
1. CONCEPT.
A “seasonal employee” is one whose work or service to be performed is seasonal in nature
and the employment is for the duration of the season.106
2. REGULAR SEASONAL EMPLOYMENT.
Seasonal employees may attain regularity in their employment as such. Once they attained
such regularity, they are properly to be called“regular seasonal employees.”
Regular seasonal workers are called to work from time to time, mostly during certain
season. The nature of their relationship with the employer is such that during off-season, they are
temporarily laid off but they are re-employed during the season or when their services may be needed.
They are not, strictly speaking, separated from the service but are merely considered as on leave of
absence without pay until they are re-employed. Their employment relationship is never severed but
only suspended. As such, they can be considered as being in the regular employment of the
employer.107
3. REQUISITES FOR REGULARITY OF EMPLOYMENT OF SEASONAL EMPLOYEES.
The case of Hacienda Fatima v. National Federation of Sugarcane Workers - Food and
General Trade,108 enunciates the requisites in order that a seasonal employee may be deemed to have
attained regularity of employment as such, thus:
1. The seasonal employee should perform work or services that are seasonal in nature; and
2. They must have also been employed for more than one (1) season.
Both requisites should concur in order that the employee may be classified as regular seasonal
employee. If the seasonal worker is engaged only for the duration of one (1) season, then, he does not attain
regularity of employment as a seasonal worker.
e.
CASUAL EMPLOYMENT109
1. MEANING OF CASUAL EMPLOYMENT.
There is casual employment where an employee is engaged to perform a job, work or service
which is merely incidental to the business of the employer, and such job, work or service is for a
definite period made known to the employee at the time of engagement.110
2. SOME PRINCIPLES ON CASUAL EMPLOYMENT.
 Casual employee becomes regular after one year of service by operation of law.111
 No regular appointment papers necessary for casual employees to become regular.112
 The one (1) year period should be reckoned from the hiring date.113
 Repeated rehiring of a casual employee makes him a regular employee.114
 The wages and benefits of a casual employee whose status is converted into regular employment
should not be diminished.115
f.
 FIXED-TERM EMPLOYMENT116
1. REQUISITES FOR VALIDITY OF FIXED-TERM CONTRACTS OF EMPLOYMENT.
The two (2) requisites or criteria for the validity of a fixed-term contract of employment are as
follows:
1. The fixed period of employment was knowingly and voluntarily agreed upon by the parties,
without any force, duress or improper pressure being brought to bear upon the employee
and absent any other circumstances vitiating his consent; or
2. It satisfactorily appears that the employer and employee dealt with each other on more or
less equal terms with no moral dominance whatever being exercised by the former on the
latter.117
If the foregoing criteria are not present, the fixed-term contract of employment should be
struck down for being illegal.118
2. SOME PRINCIPLES ON FIXED-TERM EMPLOYMENT.
 Fixed-term employment is valid even if duties are usually necessary or desirable in the employer‟ s
usual business or trade. 119
 Notice of termination not necessary in fixed-term employment.120
 Employee is deemed regular if contract failed to state the specific fixed period of employment.121
 Charges for misconduct or other wrongful acts or omissions are relevant only in termination prior
to expiration of the term. They are not relevant if termination is due to expiration of fixed
period.122
 Employees allowed to work beyond fixed term become regular employees.123
 Rendering work beyond one (1) year would result to regular employment.124
 Successive renewals of fixed-period contracts will result to regular employment.125
 Hiring of employees on a uniformly fixed 5-month basis and replacing them upon the expiration
of their contracts with other workers with the same employment status circumvents their right to
security of tenure.126
 Employment on a “day-to-day basis for a temporary period” will result to regular employment.127
 Termination prior to lapse of fixed-term contract should be for a just or authorized cause.128
 Liability for illegal dismissal of fixed-term employee is only for salary for unexpired portion.129
3. FIXED-TERM EMPLOYMENT OF OFWs.
 OFWs can never acquire regular employment.130
 Employment contracts of OFWs for indefinite period are not valid.131
 OFWs do not become regular employees by reason of nature of work.132
 Series of rehiring of OFWs cannot ripen into regular employment.133
 CBA cannot override the terms and conditions prescribed by the POEA under the Standard
Employment Contract (SEC) for OFWs.134
 Probationary employment of OFWs is a misnomer.135
 The employment of OFWs for a fixed period is not discriminatory.136
 The contracts of OFWs cease upon expiration thereof.137
 Hiring of seafarer for overseas employment but assigning him to local vessel does not affect his
status as an OFW.138
 Seafarer hired for overseas deployment but later assigned to domestic operations after the
expiration of his overseas contract ceases to be an OFW.139
3.
JOB CONTRACTING
1. CONTRACTING OUT OF SERVICES IS A PROPRIETARY RIGHT OF EMPLOYER
EXPRESSLY ALLOWED BY LAW.
 Contracting out of services is not illegal per se. It is an exercise of business judgment or
management prerogative. Absent proof that the management acted in a malicious or arbitrary manner,
the Court will not interfere with the exercise of judgment by an employer.140
2. OUTSOURCING, A UNIVERSALLY ACCEPTED MANAGEMENT PREROGATIVE.
It is within the right of an employer to enter into an outsourcing arrangement as an exercise of
its management prerogative in order to achieve greater economy and efficiency in its operations - a
universally accepted business objective and standard that can never be questioned. This universal
recognition of outsourcing as a legitimate activity has been pronounced in a number of
cases.141 A company can determine in its best judgment whether it should contract out a part of its
work for as long as the employer is motivated by good faith; the contracting is not for purposes of
circumventing the law; and does not involve or be the result of malicious or arbitrary action.142
3. OUTSOURCING MAY BE DONE REGARDLESS OF WHETHER THE ACTIVITY IS
PERIPHERAL OR CORE IN NATURE IN RELATION TO THE EMPLOYER‟ S BUSINESS.
Reiterating its earlier pronouncement in Aliviado v. Procter & Gamble Phils. , Inc. ,143 the
High Court, in the 2012 case of Digital Telecommunications Philippines, Inc. v. Digitel Employees
Union (DEU) ,144 stated that indeed, it is management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core in nature. However, in order for such
outsourcing to be valid, it must be made to a legitimate independent contractor because the current labor
rules expressly prohibit labor-only contracting.
4. JUDICIAL RECOGNITION OF VALIDITY OF OUTSOURCING.
The validity of outsourcing has been judicially recognized by the Supreme Court. It has
already taken judicial notice of the general practice adopted in several government and private
institutions and industries, of hiring independent contractors to perform special services. These services
range from janitorial, security and even technical or other specific services. While these services may
be considered directly related to the principal business of the employer, they are not necessary in the
conduct of the principal business of the employer.145
a.
ARTICLES 106 TO 109 OF THE LABOR CODE

1. LABOR CODE PROVISIONS ON JOB-CONTRACTING OR CONTRACTUALIZATION.

There are only four (4) provisions in the Labor Code which directly enunciate the rules on
contractualization, to wit:

1. Article 106 - Contractor or Subcontractor;146

2. Article 107 - Indirect Employer;147

3. Article 108 - Posting of Bond;148 and

4. Article 109 - Solidary Liability.149

These provisions will be discussed below, together with the provisions of other issuances.
b.
DEPARTMENT ORDER NO. 18-A
1. THE PREVAILING IMPLEMENTING RULES.
Department Order No. 18-A, Series of 2011, [November 14, 2011] entitled “Rules
Implementing Articles 106 to 109 of the Labor Code, as Amended,” was issued by the DOLE Secretary to
enunciate regulations governing contracting and subcontracting arrangements. This issuance superseded
Department Order No. 18-02, Series of 2002 [February 21, 2002], Department Order No. 3, Series of 2001
[May 08, 2001]and earlier Department Orders on the same subject matter.
2. POWER OF DOLE SECRETARY TO RESTRICT OR PROHIBIT CONTRACTING-OUT OF
LABOR.
 The first two (2) paragraphs of Article 106 set the general rule that a principal is permitted by
law to engage the services of a contractor for the performance of a particular job, but the principal,
nevertheless, becomes solidarily liable with the contractor for the wages of the contractor‟ s employees.
The third (3 ) paragraph of Article 106, however, empowers the Secretary of Labor to make distinctions
rd

between permissible job contracting and “labor-only” contracting which is a prohibited act further
defined under the last paragraph thereof.150
Thus, the DOLE Secretary may, by appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers established under the Labor Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who among the
parties involved shall be considered the employer for purposes of the Code, to prevent any violation or
circumvention of any provision thereof.151
3. SPECIFIC ENUMERATION OF COVERED CONTRACTORS.
Department Order No. 18-A, Series of 2011 applies to:
1. All parties of contracting and subcontracting arrangements where employer-employee
relationships exist; and
2. Cooperatives engaging in contracting or subcontracting arrangements.152
The provisions of this Department Order will be discussed jointly with those of Articles 106 to 109
of the Labor Code and those of other issuances and pieces of jurisprudence below.
c.
DEPARTMENT CIRCULAR NO. 01-12
1. DEPARTMENT CIRCULAR NO. 01, SERIES OF 2012, CLARIFYING DEPARTMENT
ORDER NO. 18-A.
Department Circular No. 01, Series of 2012, [March 13, 2012], was issued “Clarifying the
Applicability of Department Order No. 18-A, Series of 2011 to Business Processing Outsourcing (BPO)
/Knowledge Process Outsourcing (KPO) and the Construction Industry.”
The purpose of this Circular is to respond to queries on whether firms or companies in the
Business Process Outsourcing (BPO) or Knowledge Process Outsourcing (KPO) and in the
Construction Industry are covered by Department Order No. 18-A, Series of 2011.
1. On the applicability of D.O. 18-A to BPO, this Circular clarifies as follows:
D.O. 18-A, Series of 2011, clearly speaks of a trilateral relationship that characterizes the
covered contracting/subcontracting arrangement. Thus, vendor-vendee relationship for entire business
processes covered by the applicable provisions of the Civil Code on Contracts is excluded.153
D.O. 18-A, Series of 2011, contemplates generic or focused singular activity in one contract
between the principal and the contractor (for example, janitorial, security, merchandising, specific
production work) and does not contemplate information technology-enabled services involving an
entire business processes (for example, business process outsourcing, knowledge process outsourcing,
legal process outsourcing, hardware and/or software support, medical transcription, animation
services, back office operations/support) . These companies engaged in business processes ("BPOs")
may hire employees in accordance with applicable laws, and maintain these employees based on
business requirements, which may or may not be for different clients of the BPOs at different periods
of the employees' employment.154
2. On the applicability of D.O. 18-A to the Construction Industry and Coordination with
PCAB-CIAP, this Circular clarifies as follows:
The licensing and the exercise of regulatory powers over the construction industry are lodged
with the Philippine Contractors Accreditation Board (PCAB) , which is under the Construction
Industry Authority of the Philippines (ClAP) , pursuant to the provisions of P.D. No. 1746, Series of
1980, and not with the Department of Labor and Employment or any of its regional offices. PCAB
registers all contractors, whether general or subcontractors, in the Construction Industry and regulates
the same including ensuring compliance with DOLE Department Order No. 13, Series of
1998(Guidelines Governing the Occupational Safety and Health in the Construction Industry) ; and
DOLE-DPWH-DILG-DTI and PCAB Memorandum of Agreement-Joint Administrative Order No.
1, Series of 2011 (on coordination and harmonization of policies and programs on occupational safety
and health in the construction industry) .
 Thus, the DOLE, through its regional offices, shall not require contractors licensed by PCAB
in the Construction Industry to register under D.O. 18-A, Series of 2011. Moreover, findings of
violation/s on labor standards and occupational health and safety standards shall be coordinated with
PCAB for its appropriate action, including the possible cancellation/suspension of the contractor ‟ s
license.155
d.
TRILATERAL RELATIONSHIP IN JOB CONTRACTING156
1. CONTRACTING OR SUBCONTRACTING.
"Contracting" or "subcontracting" refers to an arrangement whereby a principal agrees to put
out or farm out with a contractor the performance or completion of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work or service is to be
performed or completed within or outside the premises of the principal.157
2. TRILATERAL RELATIONSHIP, MEANING.
"Trilateral relationship" refers to the relationship in a contracting or subcontracting
arrangement where there is a contract for a specific job, work or service between the principal and the
contractor, and a contract of employment between the contractor and its workers.
There are three (3) parties involved in these arrangements:
1. The principal who decides to farm out a job, work or service to a contractor;
2. The contractor who has the capacity to independently undertake the performance of the
job, work or service; and
3. The contractual workers engaged by the contractor to accomplish the job, work or
service.158
a. Principal.
"Principal" refers to any employer, whether a person or entity, including government
agencies and government-owned and controlled-corporations, who/which puts out or farms out a job,
service or work to a contractor.159
Under Article 107 of the Labor Code, a “principal” is also referred to as an “indirect
employer.” As defined therein, an “indirect employer” refers to any person, partnership, association or
corporation who/which contracts with an independent contractor for the performance of any work, job, task,
project or service. The principal thereforeis not the direct employer of the workers employed by the contractor
and assigned to the principal.
Within the context of a valid contracting arrangement, a “principal” or “indirect
employer” is also known as a “statutory employer” or, simply an“employer.” 160
b. Contractor.
"Contractor" refers to any person or entity, including a cooperative, engaged in a legitimate
contracting or subcontracting arrangement providing either services, skilled workers, temporary
workers, or a combination of services to a principal under a Service Agreement. 161
In its strict technical sense, a “contractor” is different from a “subcontractor” in that the former
is the one who/which directly enters into a contract with the principal with respect to the performance of
a certain work, job, task, project or service; while the latter merely subcontracts the said work, job, task,
project or service from the contractor. This technical distinction is evident from the language of Article 106
where mention of the“subcontractor” was made not in relation to the employer (or principal) but in
relation to the “contractor.”
However, this technical distinction between a “contractor” and a “subcontractor” is not given
any major signification as both terms may be interchangeably used since in almost all cases, they refer to one
and the same person or entity.
Thus, the “contractor” or “subcontractor” may appropriately refer to the person himself or
entity itself, called an independent contractor, who/which exercises independent employment and
who/which contracts to do a piece of work according to his/its own methods and without being subject
of control by the principal (or indirect/statutory employer) , except as to the results thereof. 162
 The “contractor” or “subcontractor” is the “direct employer” of the contractual workers or
employees who are supplied to the principal and made to perform the principal‟ s (or indirect/statutory
employer‟ s) work, job, task or project.
c. Contractual worker or contractor‟ s employee.
“Contractual worker” or "Contractor's employee" may refer to either:
1. One employed by a contractor to perform or complete a job, work, or service pursuant to a
Service Agreement with a principal; or
2. A regular employee of the contractor whose functions are not dependent on the
performance or completion of a specific job, work or service within a definite period of
time, i.e. , administrative staff.163
3. TWO (2) KINDS OF CONTRACTS IN A TRILATERAL RELATIONSHIP.
In the trilateral relationship, there are two (2) kinds of contracts that should be executed, to
wit:
(a) Employment Contract between the contractor and its employee; and
(b) Service Agreement between the principal and the contractor164 containing the terms and
conditions governing the performance or completion of a specific job, work or service
being farmed out for a definite or predetermined period.165
Governing law.
The Employment Contract is governed by the Labor Code; while the Service Agreement is
governed by the Civil Code.166
4. EMPLOYMENT CONTRACT.
a. Employer-employee relationship between contractor and its employees.
In legitimate contracting or subcontracting arrangement, there exists an employer-employee
relationship between the contractor and the employees it engaged to perform the specific job, work or
service being contracted with the principal.167
Thus, it is essential that a contract of employment be executed between the contractor and the
contractual employees. This is the first contract required to be executed in a legitimate contracting
arrangement.
b. Contents of the employment contract.
Notwithstanding any oral or written stipulations to the contrary, the employment contract between
the contractor and its employee shall be governed by the provisions of Articles 279 and 280 of the Labor
Code, as amended. It shall include the following terms and conditions:
1. The specific description of the job, work or service to be performed by the employee;
2. The place of work and terms and conditions of employment, including a statement of the
wage rate applicable to the individual employee; and
3. The term or duration of employment that must be co-extensive with the Service
Agreement or with the specific phase of work for which the employee is engaged.168
c. Duty of contractor to inform its employees about the terms of the employment
contract.
The contractor shall inform the employee of the foregoing terms and conditions of
employment in writing on or before the first day of his/her employment.169
5. SERVICE AGREEMENT.
a. The agreement is between principal and contractor.
A second contract called “Service Agreement” is required to be executed between the
principal and the contractor whose terms and conditions shall govern the contracting arrangement between
them.
b. Contents of the Service Agreement.
The Service Agreement should embody the following:
 1. The specific description of the job, work or service being subcontracted;
2. The place of work and terms and conditions governing the contracting arrangement, to
include the agreed amount of the services to be rendered and the standard administrative
fee of not less than ten percent (10%) of the total contract cost;
3. Provisions ensuring compliance with all the rights and benefits of the employees under the
Labor Code and the Implementing Rules (D.O. 18-A, Series of 2011) on: provision for
safe and healthful working conditions; labor standards such as, service incentive leave, rest
days, overtime pay, 13 month pay and separation pay; retirement benefits; contributions
th

and remittance of SSS, Philhealth, Pag-IBIG Fund, and other welfare benefits; the right to
self-organization, collective bargaining and peaceful concerted action; and the right to
security of tenure;
4. A provision on the Net Financial Contracting Capacity of the contractor, which must be
equal to the total contract cost;
5. A provision on the issuance of the bond/s renewable every year;
6. The contractor or subcontractor shall directly remit monthly the employers' share and
employees' contribution to the SSS, ECC, Philhealth and Pag-IBIG; and
7. The term or duration of engagement.170
c. Net Financial Contracting Capacity (NFCC) , meaning.
The term "Net Financial Contracting Capacity (NFCC) " mentioned in the Service
Agreement above refers to the formula to determine the financial capacity of the contractor to carry
out the job, work or services sought to be undertaken under a Service Agreement. NFCC is current
assets minus current liabilities multiplied by K, which stands for contract duration equivalent to: 10
for one year or less; 15 for more than one (1) year up to two (2) years; and 20 for more than two (2)
years, minus the value of all outstanding or ongoing projects including contracts to be started.171
NFCC is the formula set out in the Implementing Rules and Regulations of R.A. No. 9184,
[approved January 10, 2003] or “An Act Providing for the Modernization, Standardization and
Regulation of the Procurement Activities of the Government and For Other Purposes.”
d. Effect of violation of any of the contracts aforementioned.
A finding by competent authority of violation of any of the contracts mentioned above
(Employment Contract and Service Agreement) shall render the principal the direct employer of the
employees of the contractor or subcontractor, pursuant to Article 109 of the Labor Code, as
amended.172
e. Duty to produce copy of contract between the principal and the contractor.
The principal or the contractor shall be under the obligation to produce a copy of the Service
Agreement in the ordinary course of inspection by the DOLE. The contractor shall likewise be under
the obligation to produce a copy of any Contract of Employment when directed to do so by the
DOLE Regional Director or his/her authorized representative.173
e.
EFFECTS OF LABOR-ONLY CONTRACTING174
1. LEGITIMATE JOB CONTRACTING ARRANGEMENT.
It bears noting that the Labor Code does not define what constitutes a legitimate job
contracting arrangement. However, under Department Order No. 18-A175 and jurisprudence, job
contracting shall be legitimate if all of the following circumstances concur:
(1) The contractor must be duly registered with the DOLE.
(2) The contractor carries a distinct and independent business and undertakes to perform
the job, work or service on its own responsibility, according to its own manner and
method, and free from control and direction of the principal in all matters connected
with the performance of the work except as to the results thereof;
(3) The contractor has substantial capital and/or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary in the
conduct of the business;176 and
 (4) The Service Agreement between principal and contractor should ensure compliance
with all the rights and benefits of workers under Labor Laws177 such as labor and
occupational safety and health standards, free exercise of the right to self-organization,
security of tenure, and social and welfare benefits.178
Absence of any of the foregoing requisites makes it a labor-only contracting arrangement.179
2. IMPORTANT POINTS ON THE ABOVE REQUISITES.
(a) On No. 1 Requisite above. - Registration of contractor with the DOLE is now mandatorily
required. Failure to register shall give rise to thepresumption that the contractor is engaged in labor-
only contracting.180
(b) On No. 2 Requisite above. - This is the “Right of Control” test which basically addresses
the issue of whether the contractor‟ s manner and methods of performing his job contracting is
completely free from the control and direction of the principal except as to the results thereof. If the
issue is answered in the affirmative, then this requisite of legitimate job contracting arrangement is
fully satisfied.
Illustrative cases:
In the 2012 case of Digital Telecommunications Philippines, Inc. v. Digitel Employees
Union (DEU) ,181 besides the lack of substantial capitalization that indicates labor-only
contracting, it was further held that Digitel Service, Inc. (Digiserv) , a non-profit enterprise engaged
in call center servicing, was a labor-only contractor of petitioner Digitel because it does not
exercise control over the affected employees. The NLRC highlighted the fact that Digiserv shared
the same Human Resources, Accounting, Audit and Legal Departments with Digitel which
manifested that it was Digitel who exercised control over the performance of the affected
employees. The NLRC also relied on the letters of commendation, plaques of appreciation
and certification issued by Digitel to the Customer Service Representatives as evidence of control.
The same ruling of lack of control by the contractor was cited as additional justification for
declaring the contractor as a labor-only contractor in the 2012 case of Norkis Trading
Corporation v. Buenavista. 182 Thus, together with the DOLE Regional Director‟ s finding
thatPanaghiusa sa Kauswagan Multi-Purpose Cooperative (PASAKA) , a duly-registered
cooperative, evidently lacked substantial capital or investment required of legitimate job
contractors, the cooperative failed to dispute the respondents‟ allegation that officers of
Norkis Trading supervised the work and paid the salaries of its employees.
(c) On No. 3 Requisite above. - This is the “Substantial Capital or Investment” test
which seeks to address the issue of whether the contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and other materials which are necessary in the
conduct of its business.183 If the answer is in the affirmative, the second requisite in legitimate job
contracting/subcontracting arrangement is fully complied with.
Significant points:
The amount of substantial capital is now fixed under the Rules. Under Department Order
No. 18-A, the term "substantial capital"shall now mean:
1. In the case of corporations, partnerships or cooperatives - paid-up capital
stocks/shares of at least Three Million Pesos (P3,000,000.00) ; or
2. In the case of single proprietorship - a net worth of at least Three Million
Pesos (P3,000,000.00) . 184
Unlike in the past implementing rules, Department Order No. 18-A now sets in very
clear terms, the amount which constitutes “substantial capital. ”
Moreover, cooperatives are now mentioned prominently in the enumeration of the entities
which may engage in contracting/subcontracting arrangement.
By clearly specifying the amount that constitutes “substantial capital,” cases in the past where
this issue was raised should now be qualified by this new issuance. Cases subsequent to
the effectivity of Department Order No. 18-A on November 14, 2011 should take this
specific amounts into account.
“Substantial capital” and “investment in tools, etc. ” are two separate requirements.
 “Substantial capital” and “investment in tools, equipment, implements, machineries and
work premises” should be treated as two (2) distinct and separate requirements in
determining whether there is legitimate job contracting arrangement.185
(d) On No. 4 Requisite above. - This is the “Legal Rights and Benefits Compliance” test
which addresses the issue of whether the Service Agreement between the principal and contractor is
compliant with the rights and benefits of workers under labor laws.186 If answered in theaffirmative,
the contracting arrangement is deemed legitimate.
Rights of contractors‟ employees. - Per Department Order No. 18-A, all contractor's
employees, whether deployed or assigned as reliever, seasonal, week-ender, temporary, or promo
jobbers, shall be entitled to all the rights and privileges as provided for in the Labor Code, as
amended, to include the following:
(a) Safe and healthful working conditions;
(b) Labor standards such as but not limited to service incentive leave, rest days, overtime
pay, holiday pay, 13 month pay, and separation pay as may be provided in the Service
th

Agreement or under the Labor Code;

(c) Retirement benefits under the SSS or retirement plans of the contractor, if there is any;
(d) Social security and welfare benefits;
(e) Self-organization, collective bargaining and peaceful concerted activities; and
(f) Security of tenure.187
Effect of violation of the rights of contractor‟ s employees. - A finding by competent
authority of violation of the said rights of contractor‟ s employees shall render the principal
the direct employer of the employees of the contractor or subcontractor, pursuant to Article
109 of the Labor Code, as amended.188
3. LABOR-ONLY CONTRACTING.
a. Absolute prohibition.
Labor-only contracting is expressly prohibited under Article 106 of the Labor Code189 and its
implementing rules.190
b. Labor-only contracting per Department Order No. 18-A, Series of 2011.
Per law,191 this Department Order192 and pertinent jurisprudence,193 labor-only contracting
refers to an arrangement where:
(a) The contractor does not have substantial capital or investments in the form of tools,
equipment, machineries, work premises, among others, and the employees recruited and
placed are performing activities which are usually necessary or desirable to the
operation of the company, or directly related to the main business of the principal
within a definite or predetermined period,regardless of whether such job, work or
service is to be performed or completed within or outside the premises of the principal; OR
(b) The contractor does not exercise the right of control over the performance of the work of
the employee.
c. Some important points on the foregoing requisites:
1) Even if only one of the two (2) elements above is present, there is labor-only
contracting.194
2) The “Direct Relation to Principal‟ s Business” test enunciated above seeks to address
the issue of whether the employees recruited, supplied or placed by a contractor to the
principal are performing activities which are directly related to the main business of
the principal. If this poser is answered in the affirmative, the contractor is deemed a
labor-only contractor and the employees become direct employees of the principal.

Illustrative cases:

In the 2012 case of Norkis Trading Corporation v. Buenavista,195 it was established

that Panaghiusa sa Kauswagan Multi-Purpose Cooperative(PASAKA) , a duly-
registered cooperative, was a labor-only contractor because, besides its lack of
 substantial capital or investment in tools and its failure to carry on an independent
contracting business, the respondent-workers it supplied to petitioner-employer,
were performing activities directly related to the principal business of the
petitioner.

In the 2009 case of Coca-Cola Bottlers Phils. , Inc. v. Agito,196 the contractor was
declared a labor-only contractor because the respondent-workers supplied by it to
petitioner company worked therein as salesmen. In the Delivery Agreement
between petitioner and the contractor, it is stated that petitioner is engaged in the
manufacture, distribution and sale of softdrinks and other related products. The
work of respondents, constituting distribution and sale of Coca-Cola products, is
clearly indispensable to the principal business of petitioner.
3) The validity of job contracting arrangement does not depend on whether the job, work,
or service is done within or outside the company premises of the principal.197
But in the 2010 case ofBabas v. Lorenzo Shipping Corp. ,198 the High Court cited as
additional basis for holding that the contractor, Best Manpower Services, Inc. (BMSI) ,
was a labor-only contractor, the fact that petitioners worked at respondent LSC ‟ s
premises, and nowhere else. Other than the provisions of the Agreement between
respondent LSC and BMSI, there was no showing that it was BMSI which established
petitioners‟ working procedure and methods, which supervised petitioners in their
work, or which evaluated the same. There was absolute lack of evidence that BMSI
exercised control over them or their work, except for the fact that petitioners were hired
by BMSI.
4. EFFECTS OF LABOR-ONLY CONTRACTING.199
In summary, the following are the effects of a labor-only contracting arrangement:
1. The labor-only contractor will be treated as the agent or intermediary of the principal. Since
the act of an agent is the act of the principal, representations made by the labor-only
contractor to the employees will bind the principal.
2. The principal will become the employer as if it directly employed the workers supplied by
the labor-only contractor to undertake the subcontracted job or service. It will be
responsible to them for all their entitlements and benefits under labor laws.
3. The principal and the labor-only contractor will be solidarily treated as the direct employer.
4. The employees will become employees of the principal, subject to the classifications of
employees under Article 280 of the Labor Code.200
5. LEGITIMATE JOB CONTRACTING VS. LABOR-ONLY CONTRACTING.
The chief distinctions between legitimate job contracting, on the one hand, and the prohibited
labor-only contracting, on the other, may be summed up as follows:
1. In the former, no employer-employee relationship exists between the contractual employees
of the job contractor and the principal; while in the latter, an employer-employee
relationship is created by law between the principal and the contractual employees
supplied by the labor-only contractor.201
2. In the former, the principal is considered only an “indirect employer,” as this term is
understood under Article 107 of the Labor Code; while in the latter, the principal is
considered the “direct employer” of the contractual employees in accordance with the last
paragraph of Article 106 of the Labor Code.202
3. In the former, the joint and several obligation of the principal and the legitimate job
contractor is only for a limited purpose, that is, to ensure that the employees are paid their
wages. Other than this obligation of paying the wages, the principal is not responsible for
any claim made by the contractual employees; while in the latter, the principal becomes
jointly and severally or solidarily liable with the labor-only contractor to the latter‟ s
 employees in the same manner and extent that the principal is liable to employees directly
hired by him/her, as provided in Article 106 of the Labor Code, as amended.203
4. In the former, the legitimate job contractor undertakes to perform a specific job for the
principal; while in the latter, the labor-only contractor merely provides, supplies, recruits
and places the personnel to work for the principal.204
6. PROHIBITIONS OTHER THAN LABOR-ONLY CONTRACTING.
a. Two (2) sets of other prohibitions.
Notwithstanding the prohibition on labor-only contracting, the following are declared
prohibited for being contrary to law or public policy under Department Order No. 18-A, Series of 2011:
A. Contracting out of jobs, works or services when not done in good faith and not
justified by the exigencies of the business such as the following:
(1) Contracting out of jobs, works or services when the same results in the termination or
reduction of regular employees and reduction of work hours or reduction or splitting
of the bargaining unit.
(2) Contracting out of work with a "Cabo."
(3) Taking undue advantage of the economic situation or lack of bargaining strength of the
contractor's employees, or undermining their security of tenure or basic rights, or
circumventing the provisions of regular employment, in any of the following
instances:
(i) Requiring them to perform functions which are currently being performed by
the regular employees of the principal; and
(ii) Requiring them to sign, as a precondition to employment or continued
employment, an antedated resignation letter; a blank payroll; a waiver of labor
standards including minimum wages and social or welfare benefits; or a quitclaim
releasing the principal, contractor or from any liability as to payment of future
claims.
(4) Contracting out of a job, work or service through an in-house agency.
(5) Contracting out of a job, work or service that is necessary or desirable or directly
related to the business or operation of the principal by reason of a strike or lockout
whether actual or imminent.
(6) Contracting out of a job, work or service being performed by union members when
such will interfere with, restrain or coerce employees in the exercise of their rights to
self-organization as provided in Art. 248 (c) of the Labor Code, as amended.
(7) Repeated hiring of employees under an employment contract of short duration or under
a Service Agreement of short duration with the same or different contractors, which
circumvents the Labor Code provisions on Security of Tenure.
(8) Requiring employees under a subcontracting arrangement to sign a contract fixing the
period of employment to a term shorter than the term of the Service Agreement, unless
the contract is divisible into phases for which substantially different skills are required
and this is made known to the employee at the time of engagement.
(9) Refusal to provide a copy of the Service Agreement and the employment contracts
between the contractor and the employees deployed to work in the bargaining unit of
the principal's certified bargaining agent to the sole and exclusive bargaining agent
(SEBA) .
(10) Engaging or maintaining by the principal of subcontracted employees in excess of
those provided for in the applicable Collective Bargaining Agreement (CBA) or as set
by the Industry Tripartite Council (ITC) .
B. Contracting out of jobs, works or services analogous to the above when not done in
good faith and not justified by the exigencies of the business.205
b. Cabo, meaning.
"Cabo" refers to a person or group of persons or to a labor group which, in the guise of a
labor organization, cooperative or any entity, supplies workers to an employer, with or without any
monetary or other consideration, whether in the capacity of an agent of the employer or as an ostensible
independent contractor.206
c. In-house agency, meaning.
"In-house agency" refers to a contractor which is owned, managed, or controlled directly or
indirectly by the principal or one where the principal owns/represents any share of stock, and which
operates solely or mainly for the principal.207
d. Effect of commission of prohibited activities.
A finding by competent authority of commission of any of the above enumerated prohibited
activities shall render the principal the direct employer of the employees of the contractor or
subcontractor, pursuant to Article 109 of the Labor Code, as amended.208

------------oOo------------

Chapter Four
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
B. Dismissal from employment
1. Just Causes
2. Authorized Causes
3. Due Process
a) Twin-notice requirement
b) Hearing; meaning of opportunity to be heard

B.
DISMISSAL FROM EMPLOYMENT
1. TWO-FOLD DUE PROCESS REQUIREMENT.1
Dismissal of employees requires the observance of the two-fold due process requisites,
namely:
1. Substantive aspect which means that the dismissal must be for any of the (1) just
causes provided under Article 282 of the Labor Code or the company rules and regulations
promulgated by the employer; or (2) authorized causes under Articles 283 and 284
thereof; and
2. Procedural aspect which means that the employee must be accorded due process, the
elements of which are notice and the opportunity to be heard and to defend himself.2
2. JUST CAUSES VS. AUTHORIZED CAUSES.
A dismissal based on a just cause means that the employee has committed a wrongful act or
omission; while a dismissal based on anauthorized cause means that there exists a ground which the
law itself allows or authorizes to be invoked to justify the termination of an employee even if he has
not committed any wrongful act or omission such as installation of labor-saving devices, redundancy,
retrenchment, closure or cessation of business operations3 or disease.4
1.
JUST CAUSES
1. JUST CAUSES UNDER THE LABOR CODE.

The just causes in the Labor Code are found in the following provisions thereof:

(1) Article 282 - (Termination by the Employer) which provides for the following grounds:
 (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 representatives; and
(e) Other causes analogous to the foregoing.

(2) Article 264(a) - (Prohibited Activities) which provides for the termination of the following:
(a) Union officers who knowingly participate in an illegal strike and therefore deemed to
have lost their employment status.
(b) Any employee, union officer or ordinary member who knowingly participates in the
commission of illegal acts during a strike (irrespective of whether the strike is legal or
illegal) , is also deemed to have lost his employment status.
(3) Article 263(g) - (National Interest Cases) where strikers who violate orders, prohibitions
and/or injunctions as are issued by the DOLE Secretary or the NLRC, may be imposed
immediate disciplinary action, including dismissal or loss of employment status.5
(4) Article 248(e) - (Union Security Clause) where violation of the union security agreement
in the CBA may result in termination of employment. Under this clause, the bargaining
union can demand from the employer the dismissal of an employee who commits a breach
of union security arrangement, such as failure to join the union or to maintain his
membership in good standing therein. The same union can also demand the dismissal of a
member who commits an act of disloyalty against it, such as when the member organizes a
rival union.6
2. JUST CAUSES IN ACCORDANCE WITH PREVAILING JURISPRUDENCE.
In addition to the just causes mentioned in the Labor Code, just causes are also found in
prevailing jurisprudence.7 The following may be cited as just causes in accordance with prevailing
jurisprudence:
1. Violation of company rules and regulations.8
2. Theft of property owned by a co-employee9 as distinguished from company-owned
property which is considered serious misconduct.
3. Incompetence, inefficiency or ineptitude.10
4. Failure to attain work quota.11
5. Failure to comply with weight standards of employer.12
6. Attitude problem.13
3. DISMISSAL BASED ON COMPANY RULES AND REGULATIONS NOT ILLEGAL.

If the ground cited is based on the Company Rules and Regulations or Code of Conduct or
Code of Discipline, it is to be expected that the same is not to be found in Article 282 of the Labor Code
since the latter merely enumerates the just causes or grounds in general terms.
In the 2013 case of Sampaguita Auto Transport Corporation v. NLRC,14 the Supreme
Court pronounced that the Court of Appeals erred in ruling that the dismissal of private respondent, a
bus driver of petitioner, was illegal because the “grounds upon which petitioners based respondent‟ s
termination from employment, viz: „hindi lahat ng schedule nailalabas,‟ [„]mababa ang revenue ng
bus, laging kasama an[g] asawa sa byahe‟ and „maraming naririnig na kwento tungkol sa kanya, nag-
uutos ng conductor para kumita sa hindi magandang paraan[,]‟ xxx are not among thoseenumerated
under Article 282 of the Labor Code as just causes for termination of employment. ” The irregularities
or infractions committed by private respondent in connection with his work as a bus driver constitute
serious misconduct or, at the very least, conduct analogous to serious misconduct, under the above-
cited Article 282 of the Labor Code. The requirement in the company rules that: „3. to obey traffic
rules and regulations as well as the company policies. 4. to ensure the safety of the riding public
as well as the other vehicles and motorist (sic) ‟ is so fundamental and so universal that any bus driver is
expected to satisfy the requirement whether or not he has been so informed.
4. DISCUSSION OF THE JUST CAUSES UNDER ARTICLE 282 OF THE LABOR CODE.
The grounds mentioned in Article 282 shall be discussed herein seriatim.
I.
SERIOUS MISCONDUCT15

1. REQUISITES.
For misconduct or improper behavior to be a just cause for dismissal, the following requisites must
concur:

1. It must be serious; and

2. It must relate to the performance of the employee‟ s duties; and
3. It must show that he has become unfit to continue working for the employer.16
All the above three (3) requisites must concur.17
2. SOME PRINCIPLES ON SERIOUS MISCONDUCT.
• Serious misconduct implies that it must be of such grave and aggravated character and not
merely trivial or unimportant.18
• Simple or minor misconduct would not justify the termination of the services of an
employee.19
• The charge for serious misconduct must not be a mere afterthought.20
• Series of irregularities, when put together, may constitute serious misconduct.21
• Acts destructive of the morale of co-employees constitute serious misconduct.22
• Committing libel against an immediate superior constitutes serious misconduct.23
• Possession or use of shabu or other drugs is a valid ground to terminate employment.24
• Immorality, as a general rule, is not a just ground to terminate employment. The exception
is when such immoral conduct is prejudicial or detrimental to the interest of the employer.25
• Immoral act committed beyond office hours is a valid ground to terminate employment.26
• Sexual intercourse inside company premises constitutes serious misconduct.27
• The act of a 30-year old lady teacher in falling in love with a 16-year old student is not
immoral.28
• Fighting is a ground for termination but only the instigator or aggressor and not the victim
who was constrained to defend himself should be dismissed.29
• Filing of criminal case by an employee does not indicate his innocence.30
• Challenging superiors to a fight is a just cause for termination.31
• Assaulting another employee is a just cause for termination.32
• Utterance of obscene, insulting or offensive words constitutes serious misconduct.33
• Disrespectful conduct is not serious misconduct if provoked by superior or employer.34
• Gambling within company premises is a serious misconduct.35
• Rendering service to business rival is a just cause to terminate employment.36
• Selling products of a competitor is a just cause for termination.37
• Organizing a credit union by employees in a bank is a serious misconduct.38
• Deceiving a customer for personal gain is a just cause for termination.39
• Contracting work in competition with employer constitutes serious misconduct.40
• Employer need not suffer any damages resulting from a serious misconduct committed by
an employee against a customer.41
• Intoxication which interferes with the employee‟ s work constitutes serious misconduct.42
• The act of a teacher in pressuring a colleague to change the failing grade of a student is
serious misconduct.43
• Sexual harassment is a just ground to dismiss.44
• Sleeping while on duty is a ground for termination.45
• Dismissal is too harsh a penalty for eating while at work.46
• Pilferage or theft of company-owned property is a just cause to terminate.47
• Theft of funds or property not owned by employer is not a ground to terminate.48
 • Act of falsification is a valid ground to terminate employment.49
• Punching-in of time cards of other employees is a just cause for termination.50
• Circulating fake meal tickets is a just cause for termination.51
II.
INSUBORDINATION
OR WILLFUL DISOBEDIENCE OF LAWFUL ORDERS52
1. REQUISITES.
One of the fundamental duties of an employee is to obey all reasonable rules, orders and
instructions of the employer. In order to validly invoke this ground, the following requisites must be
complied with, to wit:
1. The employee‟ s assailed conduct must have been willful or intentional, the willfulness
being characterized by a wrongful and perverse attitude; and
2. The order violated must be based on a reasonable and lawful company rule, regulation or
policy and made known to the employee and must pertain to the duties for which he has
been engaged to discharge.53
2. SOME PRINCIPLES ON INSUBORDINATION.
Filing of a case questioning the validity of rules and policies does not prevent employer from
enforcing them.54
Making false allegations in complaint does not constitute insubordination.55
Failure to answer memo to explain constitutes willful disobedience.56
Another notice is required in case of termination on the ground of failure to answer memo to
explain.57
Willfulness of conduct may be deduced from the manner the reply is written.58
Refusal to undergo random drug testing constitutes both serious misconduct and
insubordination.59
Prolonged practice, not an excuse for commission of wrongful acts.60
Refusal to render overtime to meet production deadline constitutes insubordination.61
Refusal to comply with a lawful transfer constitutes insubordination.62
III.
GROSS AND HABITUAL NEGLECT OF DUTIES63
1. REQUISITES.
The following are the requisites:
(1) There must be negligence which is gross and/or habitual in character; and
(2) It must be work-related as would make him unfit to work for his employer.
2. SOME PRINCIPLES ON GROSS AND HABITUAL NEGLECT OF DUTIES.
Simple negligence is not sufficient to terminate employment.64
The negligence must be gross in character which means absence of that diligence that an
ordinarily prudent man would use in his own affairs.65
As a general rule, negligence must be both gross and habitual to be a valid ground to dismiss.66
Habituality may be disregarded if negligence is gross or the damage or loss is
substantial.67 “Habitual negligence” implies repeated failure to perform one‟ s duties for a period
of time, depending upon the circumstances.68
Negligence is a question of fact.69
In the absence of any form of negligence, the dismissal is illegal.70
Actual damage, loss or injury is not an essential requisite.71
Higher degree of diligence is required in the banking industry.72
Gross negligence may result to loss of trust and confidence.73
No negligence if the act alleged to be so is in accordance with standing company practice.74
 No negligence if the act is in accordance with management-sanctioned deviations from the
company policy.75
Absences, if authorized, cannot be cited as a ground to terminate employment.76
Tardiness or absenteeism, if not habitual, cannot be cited as a ground to terminate employment.77
Tardiness or absenteeism, if habitual, may be cited as a ground to terminate employment.78
Tardiness or absenteeism, if habitual, may be tantamount to serious misconduct.79
Absences or tardiness due to emergency, ailment or fortuitous event are justified and may not be
cited as just cause to terminate employment.80
Mere allegation of absences or tardiness is not sufficient; the burden of proof is on the employer.81
Unblemished record belies allegation of gross and habitual neglect.82
Unsatisfactory or poor performance, inefficiency and incompetence are considered just causes for
dismissal only if they amount to gross and habitual neglect of duties.83
IV.
ABANDONMENT OF WORK84
1. CONCEPT.
Abandonment is a form of neglect of duty; hence, a just cause for termination of employment
under Article 282 [b] of the Labor Code.85
2. REQUISITES.
To constitute abandonment, two (2) elements must concur, namely:
1. The employee must have failed to report for work or must have been absent without valid
or justifiable reason; and
2. There must have been a clear intention on the part of the employee to sever the employer-
employee relationship manifested by some overt act.86
3. SOME PRINCIPLES ON ABANDONMENT.
Mere absence is not enough to constitute abandonment.87
Clear intention to sever employment relationship is necessary.88
An employee who stopped working because of her mistaken belief that she has been dismissed is
not guilty of abandonment.89
Abandonment is a factual issue.90
Employer has the burden of proof to prove abandonment.91
There is no abandonment when it was the employer who prevented the workers from reporting for
work.92
Due process in abandonment cases consists only of the service of 2 notices to the employee, viz:
a. First notice directing the employee to explain why he should not be declared as having
abandoned his job; and
b. Second notice to inform him of the employer‟ s decision to dismiss him on the ground of
abandonment.93
No hearing is required to validly dismiss an employee for abandonment.94
Notices in abandonment cases must be sent to employee‟ s last known address per record of the
company. The employer need not look for the employee‟ s current whereabouts.95
Service of the notices of abandonment of work after the six-month period of “floating status” is
not valid.96
Immediate filing of a complaint for illegal dismissal praying for reinstatement negates
abandonment. 97
 Lapse of time between dismissal and filing of a case is not a material indication of abandonment.
Hence, lapse of 2 years and 5 months98 or 20 months99 or 9 months100 or 8 months101 before filing
the complaint for illegal dismissal is not an indication of abandonment. Under the law, the
employee has a 4-year prescriptive period within which to institute his action for illegal
dismissal.102
The fact that an employee filed a complaint for illegal dismissal is not by itself sufficient indicator
that he had no intention of deserting his employment if the totality of his antecedent acts palpably
display the contrary.103
Filing of a case to pre-empt investigation of the administrative case is tantamount to
abandonment.104
When what is prayed for in the complaint is separation pay and not reinstatement, the filing of
complaint does not negate abandonment.105
It is abandonment when what is prayed for in the complaint is separation pay and it was only in
the position paper that reinstatement was prayed for.106
Employment in another firm coinciding with the filing of complaint does not indicate
abandonment.107
There is no abandonment when it was the employer who prevented the workers from reporting for
work. 108
Offer of reinstatement by employer during proceedings before Labor Arbiter and refusal by
employee does not indicate abandonment but more of a symptom of strained relations between the
parties.109
Subcontracting for another company indicates abandonment.110
An employee may be absolved from the charge of abandonment of work but adjudged guilty of
AWOL.111 These two grounds are separate and distinct from each other.
An employee who failed to report for work after the expiration of the duly approved leave of
absence is considered to have abandoned his job.112
An employee who failed to comply with the order for his reinstatement is deemed to have
abandoned his work.113
An employee who, after being transferred to a new assignment, did not report for work anymore
is deemed to have abandoned his job.114
An employee who deliberately absented from work without leave or permission from his
employer for the purpose of looking for a job elsewhere is deemed to have abandoned his work.115
Imprisonment or detention by military does not constitute abandonment.116
Absence to evade arrest is not a valid justification. To do so would be to place an imprimatur on
the employee‟ s attempt to derail the normal course of the administration of justice.117
Requesting for a Certificate of Employment is not evidence of abandonment.118
Employer‟ s insistence on commission of wrongful acts like estafa and/or qualified theft by the
employees negates the charge of abandonment.Rather, it strengthens the finding of petitioner‟ s
discrimination, insensibility and antagonism towards the employees which gave no choice to the
latter except to forego their employment.119
V.
FRAUD120

1. CORRELATION OF FRAUD AND LOSS OF TRUST AND CONFIDENCE.

Fraud is separate and distinct from the other ground provided in the same paragraph, that is,
loss of trust and confidence (willful breach by the employee of the trust reposed in him by his employer
or duly authorized representative) .121
 However, the commission of fraud by an employee against the employer will necessarily
result in the latter’s loss of trust and confidence in the former. On the other hand, the ground of
willful breach by the employee of the trust and confidence reposed in him by the employer may not
necessarily involve fraud but some other acts that would similarly result in the loss of such trust and
confidence.

2. REQUISITES.

The following are the requisites of this ground:

1. The employee has committed an intentional deception and used dishonest

methods for personal gain or to damage the employer; and

2. The fraud is work-related and rendered him unfit to work for his employer.122
3. SOME PRINCIPLES ON FRAUD.
Failure to deposit collection constitutes fraud.123
Lack of damage or losses is not necessary in fraud cases. The fact that the employer did not suffer
losses from the dishonesty of the dismissed employee because of its timely discovery does not
excuse the latter from any culpability.124
Lack of misappropriation or shortage is immaterial in case of unauthorized encashment of
personal checks by teller and cashier.125
Restitution does not have absolutory effect.126
VI.
WILLFUL BREACH OF TRUST AND CONFIDENCE127
1. REQUISITES.
For the doctrine of loss of trust and confidence to apply, the following requisites must be
satisfied:
(1) The employee holds a position of trust and confidence;
(2) There exists an act justifying the loss of trust and confidence,128 which means that the act
that betrays the employer‟ s trust must be real, i.e. , founded on clearly established facts;129
(3) The employee‟ s breach of the trust must be willful, i.e. , it was done intentionally,
knowingly and purposely, without justifiable excuse;130 and
(4) The act must be in relation to his work which would render him unfit to perform it.
2. GUIDELINES.
As a safeguard against employers who indiscriminately use “loss of trust and confidence” to
justify arbitrary dismissal of employees, the Supreme Court, in addition to the above elements, came
up with the following guidelines for the application of the doctrine:131
(1) The loss of confidence must not be simulated;
(2) It should not be used as a subterfuge for causes which are illegal, improper or unjustified;
(3) It may not be arbitrarily asserted in the face of overwhelming evidence to the contrary;
and
(4) It must be genuine, not a mere afterthought, to justify earlier action taken in bad faith.132
The foregoing guidelines have been prescribed by the Supreme Court due to the subjective
nature of this ground which makes termination based on loss of trust and confidence prone to abuse.133
3. SOME PRINCIPLES ON THE DOCTRINE OF LOSS OF TRUST AND CONFIDENCE.
Employee‟ s position must be reposed with trust and confidence.134
“Position of trust and confidence” is one where a person is entrusted with confidence on delicate
matters, or with the custody, handling, or care and protection of the employer‟ s property.135
 Two (2) classes of positions of trust. 136 The first class consists of managerial employees or
those who, by the nature of their position, are entrusted with confidential and delicate matters and
from whom greater fidelity to duty is correspondingly expected. They refer to those vested with
the powers or prerogatives to lay down and execute management policies and/or to hire, transfer
suspend, lay-off, recall, discharge, assign or discipline employees or to effectively recommend
such managerial actions.137 Their primary duty consists of the management of the establishment in
which they are employed or of a department or a subdivision thereof.138
The second class includes “cashiers, auditors, property custodians, or those who, in the normal and
routine exercise of their functions, regularly handle significant amounts of [the employer‟ s] money
or property.” 139 They are fiduciary rank-and-file employees who, though rank-and-file, are
routinely charged with the custody, handling or care and protection of the employer's money or
property,140 or entrusted with confidence on delicate matters,141 and are thus classified as
occupying positions of trust and confidence.142
Rules on termination of managerial and supervisory employees different from those
applicable to rank-and-file employees. As a general rule, the doctrine of “trust and confidence”
is restricted to managerial employees.143 This means that the rules on termination of employment
applicable to managerial or fiduciary employees are different from those involving ordinary
employees not holding positions of trust and confidence. In the latter case, mere accusations by the
employer will not be sufficient.144 Thus, with respect to rank-and-file personnel, loss of trust and
confidence as a ground for valid dismissal requires proof of involvement in the alleged events in
question and that mereuncorroborated assertions and accusations by the employer will not be
sufficient. But as regards a managerial employee, the mere existence of a basis for believing that
he has breached the trust of his employer would suffice for his dismissal.145
There must be “some basis” for the loss of trust and confidence which means that there is
reasonable ground to believe, if not to entertain the moral conviction, that the concerned employee
is responsible for the misconduct and that the nature of his participation therein rendered him
absolutely unworthy of trust and confidence demanded by his position.146
In termination for loss of trust and confidence, the fact that the employer did not suffer losses is of
no moment.147
Employer has burden of proof.148
Dismissal due to feng shui mismatch is not a valid ground to lose trust and confidence.149
Command responsibility of managerial employees is a ground to dismiss.150
Confidential employee may be dismissed for loss of trust and confidence.151
Grant of promotions and bonuses negates loss of trust and confidence.152
Long years of service, absence of derogatory record and small amount involved are deemed
inconsequential insofar as loss of trust and confidence is concerned.153
Dropping of criminal charges or acquittal in a criminal case arising from the same act does not
affect the validity of dismissal based on loss of trust and confidence.154
Full restitution does not absolve employee of offense which resulted in the loss of trust and
confidence.155
VII.
COMMISSION OF CRIME OR OFFENSE156

1. REQUISITES.

The following are the requisites for the valid invocation of this ground:

1. A crime or offense was committed by the employee;

2. It was committed against any of the following persons:

(a) His employer;
 (b) Any immediate member of his employer‟ s family; or
(c) His employer‟ s duly authorized representative.
2. SOME PRINCIPLES ON THE COMMISSION OF CRIME OR OFFENSE.
Because of its gravity, work-relation is not necessary. Neither is it necessary to show that the
commission of the criminal act would render the employee unfit to perform his work for the
employer.
The phrase “immediate members of the family” refers to those persons having family relations under
Article 150 of the Family Code, to wit:
(1) Between husband and wife;
(2) Between parents and children;
(3) Among other ascendants and descendants; and
(4) Among brothers and sisters, whether of the full or half-blood.157
VIII.
OTHER ANALOGOUS CAUSES158
1. ANALOGOUS CAUSES UNDER ESTABLISHED JURISPRUDENCE.

The following may be cited as analogous causes:

1) Violation of company rules and regulations.159

2) Theft of property owned by a co-employee, as distinguished from theft of property owned
by the employer.160
3) Incompetence, inefficiency or ineptitude.161
4) Failure to attain work quota.162
5) Failure to comply with weight standards of employer.163
6) “Attitude problem” is analogous to loss of trust and confidence.164
IX.
TERMINATION DUE TO ENFORCEMENT OF
UNION SECURITY CLAUSE165
1. NATURE OF STIPULATION.
The “union security clause” is a stipulation in a CBA166 which allows the parties thereto to
enter into an agreement requiring membership in the exclusive collective bargaining agent which
successfully negotiated said CBA as a condition for continued employment with the exception of
employees who are already members of another union at the time of the signing of the CBA.
The validity of dismissal based on this ground which jurisprudentially is considered a just
cause, has lately been reiterated in the case ofAlabang Country Club, Inc. v. NLRC,167 where the
Supreme Court declared that in addition to the grounds mentioned in Articles 282, 283, 284 and 285 of the
Labor Code, another just cause for termination is dismissal from employment due to the enforcement
of the union security clause in the CBA.
2. EFFECTS OF THE APPLICATION OF THE UNION SECURITY CLAUSE.
The following are the effects:
a. On members of the bargaining union/agent. They are not allowed to resign or terminate
their membership therefrom. Any member of the bargaining agent who resigns or
is expelled therefrom may be recommended to the employer by the bargaining agent for
termination of his employment.
b. On non-members of the bargaining union/agent but members of the minority
union/s. They are not bound by the union security clause if they are members of the
minority or other unions at the time of the signing of the CBA. Hence, they cannot be
compelled to resign from their union/s in order to join the bargaining agent.
c. On non-members of the bargaining union/agent or of any minority union/s. If not a
member of the bargaining agent or any other unions in the bargaining unit at the time of
the signing of the CBA by reason of the fact that he is excepted from the coverage of the
bargaining unit, the employee cannot be compelled to join the bargaining agent.
 d. On new employees hired after the signing of the CBA containing the union security
clause. They can be compelled to join the bargaining agent. If they refuse, they can be
recommended for termination.
3. EXCEPTION TO APPLICATION OF THE UNION SECURITY CLAUSE.
Religious ground is the only exception that may effectively be invoked against the application
of the union security clause.168 For example: members of the Iglesia ni Kristo (INK) cannot be
compelled to join a union; hence, they are not bound by the union security doctrine.169
4. REQUISITES FOR THE VALID TERMINATION DUE TO ENFORCEMENT OF UNION
SECURITY CLAUSE.
(1) The union security clause is applicable;
(2) The bargaining union is requesting for the termination of employment due to enforcement
of the union security provision in the CBA; and
(3) There is sufficient evidence to support the union‟ s decision to expel the employee from the
union.
All the foregoing requisites should be complied with to justify the termination of
employment.170
5. SOME RELEVANT PRINCIPLES.
 Dismissal effected by the employer pursuant to a labor union‟ s demand in accordance with a
union security agreement does not constitute an unfair labor practice.171
 Employer is obligated to act upon being demanded by the union to terminate the employment of
its errant members.172
 Employer should afford due process to the expelled unionist.173
 The employee sought to be terminated should be afforded an “independent and separate hearing”
which means that the employer is not duty-bound to immediately implement the recommendation
to terminate made by the union. It has to conduct its own hearing independent and separate from
any hearing conducted by the union.174
 Employer has the liability for reinstatement, full backwages, damages and attorney‟ s fees in
illegal dismissal cases based on the union security clause.175
 The employer has the right to be reimbursed for payment of any claims arising out of dismissals
made upon demand of the union under the union security clause.176
2.

AUTHORIZED CAUSES177
1. TWO (2) CLASSES.
Under the Labor Code, authorized causes are classified into two (2) classes, namely:
(1) Business-related causes. - Referring to the grounds specifically mentioned in Article 283,
to wit:
a. Installation of labor-saving device;
b. Redundancy;
c. Retrenchment;
d. Closure or cessation of business operations NOT due to serious business losses or
financial reverses; and
e. Closure or cessation of business operations due to serious business losses and financial
reverses.
(2) Health-related causes. - Referring to disease covered by Article 284 of the Labor Code.
2. COMMONALITY OF REQUISITES OF THE AUTHORIZED CAUSES UNDER ARTICLE
283.
Notably, there are certain requisites that are common to the five (5) grounds in Article 283. To
simplify the discussion, the following five (5) common requisites are applicable to the said grounds:
1. There is good faith in effecting the termination;
2. The termination is a matter of last resort, there being no other option available to the
employer after resorting to cost-cutting measures;
 3. Two (2) separate written notices are served on both the affected employees and the
DOLE at least one (1) month prior to the intended date of termination;
4. Separation pay is paid to the affected employees, to wit:
(a) If based on (1) installation of labor-saving device, or (2) redundancy. - One (1)
month pay or at least one (1) month pay for every year of service, whichever is higher,
a fraction of at least six (6) months shall be considered as one (1) whole year.
(b) If based on (1) retrenchment, or (2) closure NOT due serious business losses or
financial reverses. - One (1) month pay or at least one-half (½) month pay for every
year of service, whichever is higher, a fraction of at least six (6) months shall be
considered as one (1) whole year.
(c) If closure is due to serious business losses or financial reverses, NO separation pay is
required to be paid.
(d) In case the CBA or company policy provides for a higher separation pay, the same
must be followed instead of the one provided in Article 283.
5. Fair and reasonable criteria in ascertaining what positions are to be affected by the
termination, such as, but not limited to: nature of work; status of employment (whether
casual, temporary or regular) ; experience; efficiency; seniority; dependability;
adaptability; flexibility; trainability; job performance; discipline; and attitude towards
work.178 Failure to follow fair and reasonable criteria in selecting who to terminate would
render the termination invalid.179
I.
INSTALLATION OF LABOR-SAVING DEVICE
1. ADDITIONAL REQUISITE UNIQUE TO THIS GROUND.
In addition to the five (5) common requisites above, the unique requisite for this ground is
that the purpose for such installation must be valid, such as to save on cost, enhance efficiency
and other justifiable economic reasons.180
2. SOME RELEVANT PRINCIPLES.
The installation of these devices is a management prerogative and the courts will not interfere
with its exercise in the absence of abuse of discretion, arbitrariness, or malice on the part of
management.181
Redundancy results from installation of labor-saving device. The installation of labor-saving
device will result in making the positions being held by employees who will be adversely affected
thereby redundant and unnecessary.182
Modernization program through introduction of high-speed machines is valid.183
Proof of losses is not required.
II.
REDUNDANCY
1. ADDITIONAL REQUISITE UNIQUE TO THIS GROUND.
The fact of redundancy must be proved. Redundancy exists under any of the following
circumstances:
(1) Where the services of employees are in excess of what is reasonably demanded by the
actual requirements of the enterprise.184
(2) Where the position is superfluous because of a number of factors, such as over-hiring of
workers, decreased volume of business, dropping of a particular product line or
service activity previously manufactured or undertaken by the enterprise or phasing
out of service activity priorly undertaken by the business.185
(3) Where there is duplication of work. Indeed, in any well-organized business enterprise, it
would be surprising to find duplication of work and two (2) or more people doing the
work of one person.186
(4) Where it is validly resorted to as a cost-cutting measure and to streamline operations so
as to make them more viable. Positions which overlapped each other, or which are in
excess of the requirements of the service, may be declared redundant.187
2. SOME PRINCIPLES ON REDUNDANCY.
  The wisdom, soundness or characterization of service as redundant by the employer is not
subject to review. The only exception is when there is a showing that the same was done in
violation of law or attended with arbitrary and malicious action.188
 Burden of proof in redundancy rests on the employer.189
 Evidence of losses is not required.190
 Elimination of undesirables, abusers and worst performers through redundancy is not an
indication of bad faith.191
 The act of the employer in hiring replacements is not an indication of bad faith if the positions
have no similar job descriptions.192
 Redundancy to save on labor costs is valid.193
 Redundancy resulting from use of high technology equipment is valid.194
 Abolition of positions or departments is valid.195
 Reorganization through redundancy is valid.196
 Contracting out of abolished positions to independent contractors is valid.197
 Hiring of casuals or contractual employees after redundancy is valid.198
 Where two or more persons are performing the same work which may be effectively
accomplished by only one, the employer may terminate the excess personnel and retain only
one.199
 Even if there is a seniority rule, such as the LIFO (Last In, First Out) rule, the nature of work
and experience of the employees should still be taken into account by the employer.200
 The LIFO or FILO (First In, Last Out) rule has no basis in law.201
 LIFO rule is not controlling as employer has the prerogative to choose who to terminate.202
III.
RETRENCHMENT
1. RETRENCHMENT, DEFINED.
Retrenchment has been defined as “the termination of employment initiated by the employer
through no fault of the employees and without prejudice to the latter, resorted by management during
periods of business recession, industrial depression, or seasonal fluctuations; or during lulls occasioned
by lack of work or orders, shortage of materials; or considerable reduction in the volume of the
employer‟ s business, conversion of the plant for a new production program or the introduction of new
methods or more efficient machinery, or of automation.” 203
2. ADDITIONAL REQUISITE UNIQUE TO THIS GROUND.
Proof of losses or possible imminent losses is the distinctive requisite of
retrenchment. This is the only statutory ground in Article 283 which requires this kind of proof. The
other grounds of closure or cessation of business operations may be resorted to with or without
losses.204
3. STANDARDS TO DETERMINE VALIDITY OF LOSSES AS JUSTIFICATION FOR
RETRENCHMENT.
The general standards in terms of which the act of an employer in retrenching or reducing the number
of its employees must be appraised are as follows:
1. The losses expected should be substantial and not merely de minimis or insubstantial and
inconsequential in extent.
2. The substantial loss apprehended must be reasonably imminent, as such imminence can be
perceived objectively and in good faith by the employer.
3. Retrenchment must be reasonably necessary and likely to effectively prevent the expected losses.
The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e. , cut
other costs than labor costs.
 4. The alleged losses, if already realized, and the expected imminent losses sought to be
forestalled, must be proved by sufficient and convincing evidence through presentation of externally
audited financial statements.205
4. SOME PRINCIPLES ON RETRENCHMENT.
 If said standards are present, wisdom to retrench cannot be questioned.206
 The retrenchment must be done in good faith.207
 Notoriety of the employee is a valid criterion.208
 The progressive manner of implementing the streamlining and downsizing of operations resorted
to by a construction company in order not to jeopardize the completion of its projects is
valid. Thus, several departments like the Civil Works Division, Electro-mechanical Works
Division and the Territorial Project Management Offices, among others, were abolished in the
early part of 1996 and thereafter, the Structural Steel Division by the end of year 1997.209
 The fact that there has been economic or other crisis besetting a particular sector or the country as
a whole is not sufficient justification for retrenchment.210
 Article 283 applies only to permanent retrenchment or lay-off.211
 Cost-reduction or cost-saving measures prior to retrenchment are required.212
 The phrase “retrenchment to prevent losses” means that retrenchment must be undertaken by
the employer before the losses anticipated are actually sustained or realized. The employer need
not keep all his employees until after his losses shall have materialized. Otherwise, the law could
be vulnerable to attack as undue taking of property for the benefit of another.213
 Employer bears the burden of proof to show business losses or financial reverses.214
 Best evidence of losses - financial statements audited by independent auditors (not by
internal auditors) . 215
 Best evidence of losses in a government-controlled corporation - financial statements audited
by COA. 216
 Period covered by financial statements, material.217
 Income tax returns, not valid since they are self-serving documents. 218

 Mere affidavit on alleged losses is not sufficient.219

 Mere notice of intention to implement a retrenchment program is not sufficient.220
 Rehabilitation receivership presupposes existence of losses.221 However, the fact that the employer
is undergoing rehabilitation receivership does not by itself excuse it from submitting to the labor
authorities copies of its audited financial statements to prove the urgency, necessity and extent of
its retrenchment program.222
 Audited financial statements should be presented before the Labor Arbiter or the NLRC but not
belatedly before the Court of Appeals or Supreme Court.223
 Retrenchment effected long after the business losses is not valid.224
 Profitable operations in the past do not affect the validity of retrenchment.225
 Compulsory retirement to prevent further losses is valid.226
 Early Retirement Program (ERP) to prevent further losses and implemented prior to retrenchment
is valid.227
 Rotation of work may be tantamount to constructive dismissal or retrenchment.228
 Retrenchment due to liquidity problem is not valid.229
 Sharp drop in income is not a ground to justify retrenchment. A mere decline in gross income
cannot in any manner be considered as serious business losses. It should be substantial, sustained
and real.230
  Litany of woes, in the absence of any solid evidence that they translated into specific and
substantial losses that would necessitate retrenchment, will not suffice to justify retrenchment.231
 Rehiring of retrenched employees does not necessarily indicate illegality of retrenchment.232
 In an enterprise which has several branches nationwide, profitable operations in some of them will
not affect the validity of the retrenchment if overall, the financial condition thereof reflects
losses.233
IV.
CLOSURE OR CESSATION OF BUSINESS OPERATIONS
1. CONCEPT.
Closure or cessation of business is the complete or partial cessation of the operations and/or
shutdown of the establishment of the employer. It is carried out to either stave off the financial ruin or
promote the business interest of the employer.234
Closure involves two (2) situations:
(a) When NOT due to serious business losses or financial reverses; or
(b) When due to serious business losses or financial reverses
It is only in the first that payment of separation pay is required. No such requirement is
imposed in the second.235
2. SOME PRINCIPLES ON CLOSURE.
 Employer may close its business whether it is suffering from business losses or not; court
cannot order employer to continue its business.236
 Principle of closure under Article 283 applies in cases of both total and partial closure or
cessation of business operations. Management may choose to close only a branch, a department,
a plant, or a shop.237
 Closure of department or section and hiring of workers supplied by independent contractor as
replacements is valid.238
 Relocation of business may amount to cessation of operations.239
 The burden of proving that the closure or cessation of business operations is bona-fide falls
upon the employer.240
 Closure may constitute an unfair labor practice if it is resorted to as a ruse or scheme to get rid
of employees on account of their union activities.241
 Closure by reason of enactment of a law is valid. Example: The closure of the Philippine
Veterans Bank by operation of law (R.A. No. 7169 [An Act to Rehabilitate the Philippine
Veterans Bank Created Under Republic Act 3518, Providing the Mechanisms Therefor and for
other Purposes]242 or closure of the employer‟ s business because a large portion of its estate was
acquired by the Department of Agrarian Reform pursuant to the Comprehensive Agrarian
Reform Program (CARP) under R.A. No. 6657.243
 Closure of business to merge or consolidate with another or to sell or dispose all of its assets,
held valid.244
 Audited financial statements necessary only in closure due to losses. 245
 Evidence of losses in a closure case should not be presented for the first time on appeal with the
Court of Appeals or Supreme Court.246
 For closure to be a valid basis, it must be invoked at the time of termination and not after.247
 Closure of a department or section due to losses amounts to retrenchment.248
V.
DISEASE249
1. REQUISITES.
Disease is one of the authorized causes to terminate employment. The following requisites must
be complied with before termination of employment due to disease may be justified:
 1. The employee is suffering from a disease;
2. His continued employment is either:
a) prohibited by law; or
b) prejudicial to his health; or
c) prejudicial to the health of his co-employees;
3. There is a certification by a competent public health authority that the disease is of such
nature or at such stage that it cannot be cured within a period of six (6) months even with
proper medical treatment;
4. Notice of termination based on this ground should be separately served both to the
employee and the Department of Labor and Employment at least one (1) month prior to the
effectivity of the termination;250 and
5. Separation pay should be paid to the employee in an amount equivalent to at least one (1)
month salary or to one-half (½) month salary for every year of service, whichever is
greater, a fraction of at least six (6) months being considered as one (1) whole year.251
2. SOME PRINCIPLES ON DISEASE.
 Burden of proof rests on the employer.252
 If the disease or ailment can be cured within the period of six (6) months with proper medical
treatment, the employer should not terminate the employee but merely ask him to take a leave of
absence. The employer should reinstate him to his former position immediately upon the
restoration of his normal health.253
 In case of death, Article 284 does not apply.254
 In case the employee unreasonably refuses to submit to medical examination or treatment upon
being requested to do so, the employer may terminate his services on the ground of
insubordination or willful disobedience of lawful order.255
 A medical certificate issued by a company‟ s own physician is not an acceptable certificate for
purposes of terminating an employment based on Article 284, it having been issued not by a
“competent public health authority,” the person referred to in the law.256
 A “competent public health authority” refers to a government doctor whose medical
specialization pertains to the disease being suffered by the employee. For instance, if the
employee suffers from tuberculosis, the medical certificate should be issued by a government-
employed pulmonologist who is competent to make an opinion thereon. If the employee has cardiac
symptoms, the competent physician in this case would be a cardiologist.
 Medical certificate is an indispensable requisite.257 It is the best evidence of illness.258
 The medical certificate should be procured by the employer and not by the employee.259
 The employer has the burdent to prove existence of the medical certificate.260
 Employee dismissed without the medical certificate is entitled to moral and exemplary
damages.261
 Separate notices of the termination to the affected employee and to the DOLE is necessary.262
 Hearing is not required, disease being an authorized cause.

3.

DUE PROCESS263

(a) Twin-Notice Requirement

(b) Hearing; Meaning of Opportunity to be Heard

1. JOINT DISCUSSION.
The foregoing topics will be discussed herein jointly in the light of their close interrelation.
2. THE AGABON DOCTRINE: DUE PROCESS IN TERMINATION OF EMPLOYMENT
REFERS TO STATUTORY, AND NOT CONSTITUTIONAL, DUE PROCESS.
Per Agabon doctrine,264 it is now the prevailing rule that it is not the due process provided in
the Constitution265 that is required in termination of employment but the statutory due process provided
under Article 277[b] of the Labor Code.
“Constitutional due process” protects the individual from the government and assures him of his
rights in criminal, civil or administrative proceedings; while “statutory due process” protects employees
from being unjustly terminated without just cause after notice and hearing. Put differently, the Bill of Rights is
not meant to be invoked against acts of private individuals like employers. Private actions, no matter how
egregious, cannot violate the constitutional guarantees.
3. THE ABBOTT LABORATORIES DOCTRINE: CONTRACTUAL DUE PROCESS.
a. New doctrine.
The norm since Agabon is that compliance with the statutorily-prescribed procedural due
process under Article 277(b) 266 would suffice. Whether there is an existing company policy which also
enunciates the procedural due process in termination cases need not be considered nor given any weight in
determining the validity of the termination.
However, under the latest doctrinal en banc ruling in the 2013 case of Abbott Laboratories,
Philippines v. Pearlie Ann F. Alcaraz, 267 it is now required that in addition to compliance with the
statutory due process, the employer should still comply with the due process procedure prescribed in its own
company rules. The employer‟ s failure to observe its own company-prescribed due process will make it
liable to pay an indemnity in the form of nominal damages, the amount of which is equivalent to the
P30,000.00 awarded under the Agabon doctrine.
It was found in this case of Abbott Laboratories that respondent Alcaraz,268 who was hired as
a probationary managerial employee, was afforded both the statutorily-mandated substantive and
procedural due process, when she was terminated 269 for failure to qualify as a regular employee.
Nonetheless, despite the existence of a sufficient ground to terminate Alcaraz ‟ s employment and
Abbott‟ s compliance with the Labor Code termination procedure, it was found that petitioner Abbott
breached its contractual obligation to Alcaraz when it failed to abide by its own procedure in
evaluating the performance of a probationary employee. Company personnel policies create an
obligation on the part of both the employee and the employer to abide by the same.
Records show that Abbott‟ s PPSE270 procedure mandates, inter alia, that the job performance
of a probationary employee should be formallyreviewed and discussed with the employee at least twice:
first, on the third month and second, on the fifth month from the date of employment. Abbottis also required
to come up with a Performance Improvement Plan during the third month review to bridge the gap between
the employee‟ sperformance and the standards set, if any. In addition, a signed copy of the PPSE form
should be submitted to Abbott‟ s HRD as the same would serveas basis for recommending the confirmation
or termination of the probationary employment.
In this case, it is apparent that Abbott failed to follow the above-stated procedure in
evaluating Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcaraz‟ s PPSE form was
submitted to the HRD. It was not even shown that a PPSE form was completed to formally assess
herperformance. Neither was the performance evaluation discussed with her during the third and fifth months
of her employment. Nor did Abbott comeup with the necessary Performance Improvement Plan to properly
gauge Alcaraz‟ s performance with the set company standards.
While it is Abbott‟ s management prerogative to promulgate its own company rules and even
subsequently amend them, this right equallydemands that when it does create its own policies and
thereafter notify its employee of the same, it accords upon itself the obligation to faithfullyimplement them.
Indeed, a contrary interpretation would entail a disharmonious relationship in the work place for the laborer
should never be mired by the uncertainty of flimsy rules in which the latter‟ s labor rights and duties would,
to some extent, depend.
b. Proper sanction for lack of contractual due process.
In imposing the penalty of indemnity in the form of nominal damages upon petitioner Abbott, it was
held that while there lies due cause to terminate Alcaraz‟ s probationary employment for her failure to meet
the standards required for her regularization, and while it must be further pointed out that Abbott had
satisfied its statutory duty to serve a written notice of termination, the fact that it violated its own
company procedure renders the termination of Alcaraz‟ s employment procedurally infirm,
warranting the payment of nominal damages.
 Evidently, the sanctions imposed in both Agabon271 and Jaka272 proceed from the necessity to
deter employers from future violations of the statutory due process rights of employees. In similar
regard, the Court deems it proper to apply the same principle to the case at bar for the reason that
an employer‟ s contractual breach of its own company procedure - albeit not statutory in source - has
the parallel effect of violating the laborer‟ s rights. Suffice it to state, the contract is the law between the
parties and thus, breaches of the same impel recompense to vindicate a right that has beenviolated.
Consequently, while the Court is wont to uphold the dismissal of Alcaraz because a valid cause exists,
the payment of nominal damages onaccount of Abbott‟ s contractual breach is warranted in accordance
with Article 2221273 of the Civil Code.
c. Proper amount of nominal damages.
Anent the proper amount of damages to be awarded, the Court observes that Alcaraz‟ s
dismissal proceeded from her failure to comply withthe standards required for her regularization. As
such, it is undeniable that the dismissal process was, in effect, initiated by an act imputable to
theemployee, akin to dismissals due to just causes under Article 297274 [282] of the Labor Code.
Therefore, the Court deems it appropriate to fix the amount of nominal damages at the amount
of P30,000.00, consistent with its rulings in both Agabon275 and Jaka. 276
4. PROCEDURAL DUE PROCESS VARIES DEPENDING ON THE GROUND/S INVOKED.
Based on law and jurisprudence, it is clear that the procedural due process required to validly
terminate an employee depends on the ground invoked. There is no uniform procedural due process that
should be applied in all cases.
5. THE KING OF KINGS TRANSPORT DOCTRINE: PROCEDURAL DUE PROCESS IN JUST
CAUSE TERMINATION.
a. Procedural steps.
In just cause termination, the twin-notice requirement applies. More particularly, the following
procedure in the order presented below should be followed:
1. Service of first written notice;
2. Conduct of hearing; and
3. Service of second written notice.
b. The King of Kings Transport doctrine.
Based on this doctrine which was enunciated inKing of Kings Transport, Inc. v.
Mamac,277 the following requirements should be complied with:
(1) First written notice.
The first written notice to be served on the employee should:
a) Contain the specific causes or grounds for termination against him;
b) Contain a directive that the employee is given the opportunity to submit his written
explanation within the reasonable period of FIVE (5) CALENDAR DAYS from
receipt of the notice:
1) to enable him to prepare adequately for his defense;
2) to study the accusation against him;
3) to consult a union official or lawyer;
4) to gather data and evidence; and
5) to decide on the defenses he will raise against the complaint.
c) Contain a detailed narration of the facts and circumstances that will serve as basis for
the charge against the employee. This is required in order to enable him to intelligently
prepare his explanation and defenses. A general description of the charge will not
suffice.
d) Specifically mention which company rules, if any, are violated and/or which among
the grounds under Article 282 is being charged against the employee.
(2) Hearing required,
After serving the first notice, the employer should schedule and conduct a hearing
or conference wherein the employee will be given the opportunity to:
 1) explain and clarify his defenses to the charge/s against him;
2) present evidence in support of his defenses; and
3) rebut the evidence presented against him by the management.
During the hearing or conference, the employee is given the chance to defend
himself personally, with the assistance of a representative or counsel of his choice. Moreover, this
conference or hearing could be used by the parties as an opportunity to come to an amicable settlement.
(3) Second written notice.
After determining that termination of employment is justified, the employer shall serve the
employees a written notice of terminationindicating that:
1) all circumstances involving the charge/s against the employee have been considered; and
2) grounds have been established to justify the severance of his employment.278
c. The foregoing rule does not apply in case of abandonment.
Abandonment is a just cause to terminate employment. It is considered a form of gross neglect of
duties under Article 282[b] of the Labor Code. However, the procedural due process is different from the
process described above. For obvious reason, due process in abandonment cases does not involve the
conduct of hearing. Compliance with the following two (2) notices suffices, viz:
1) First notice asking the employee to explain why he should not be declared as having
abandoned his job; and
2) Secondnotice informing him of the employer‟ s decision to dismiss him on the ground of
abandonment.
d. The Perez doctrine.
The 2009 Perez doctrine279 enunciates the newguiding principles on the hearing aspect of
procedural due process. This dramatically modified the concept of hearing in just cause
termination. (See separate discussion in No. 9 below) .
6. PROCEDURAL DUE PROCESS IN AUTHORIZED CAUSE TERMINATION.
Due process in authorized cause termination is deemed complied with upon the separate and
simultaneous service of a written notice of the intended termination to both:
(1) the employee to be terminated; and
(2) the appropriate DOLE Regional Office, at least one (1) month before the intended date of
the termination specifying the ground/s therefor and the undertaking to pay the separation
pay required under Article 283 of the Labor Code.
7. PROCEDURAL DUE PROCESS IN DEFINITE-PERIOD EMPLOYMENT.
Procedural due process is not required in termination of the following:
1. Project employment which automatically terminates upon completion of the project;
2. Seasonal employment which automatically terminates upon the end of the season;
3. Casual employment which automatically terminates upon the lapse of the agreed period;
4. Fixed-term employment which automatically terminates upon the expiration of the fixed
period.
8. PROCEDURAL DUE PROCESS IN TERMINATION OF
PROBATIONARY EMPLOYMENT.
Probationary employment may be terminated prior to the lapse of the probationary period
fur just or authorized cause; in which case, the appropriate, applicable procedural due process should
apply.
However, if the ground invoked is the failure of the probationary employee to qualify as a
regular employee based on the reasonable standards made known to him at the time of his
engagement, no due process is required. it is sufficient that a written notice of termination is served to
the probationary employee within a reasonable time from the effective date thereof setting forth the
justification of such termination.280
Per Abbott Laboratories doctrine, 281 however, if the employer has prescribed in its company
rules a certain procedure for the termination of probationary employment, the same should be complied with;
otherwise, the employer will be penalized with an indemnity in the form of nominal damages in the amount of
P30,000.00.
9. THE PEREZ DOCTRINE: NEW GUIDING PRINCIPLE ON THE HEARING
REQUIREMENT.
 The concept of hearing as part of due process has been significantly changed by
the Perez doctrine.282 It enunciates the newguiding principleson the hearing aspect of procedural due
process. It has interpreted the term “ample opportunity to be heard” in a new light, thus:
(a) “Ample opportunity to be heard” means any meaningful opportunity (verbal or written)
given to the employee to answer the chargesagainst him and submit evidence in support
of his defense, whether in a hearing, conference or some other fair, just and reasonable
way.
(b) A formal hearing or conference is no longer mandatory. It
becomes mandatoryonly under any of the following circumstances:
(1) When requested by the employee in writing; or
(2) When substantial evidentiary disputes exist; or
(3) When a company rule or practice requires it; or
(4) When similar circumstances justify it.
(c) the “ample opportunity to be heard” standard in the Labor Code prevails over
the “hearing or conference” requirement in itsImplementing Rules and Regulations.
This is how the Supreme Court resolved the conflict in the following provisions of the
Labor Code and its implementing rules:
1) Under Article 277(b) of the Labor Code, the employer is required to afford the
employee “ample opportunity to be heard and to defend himself with the
assistance of his representative if he so desires”; while -
2) Under Section 2(d) , Rule I, Book VI of the Implementing Rules of the Labor Code,
the employer is required to afford to the employee 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.”
The Perez doctrine is now the prevailing rule as shown by a catena of cases283 which cited it
after its promulgation.
10. SOME PRINCIPLES ON HEARING REQUIREMENT.
 If employee does not answer, hearing should still proceed.284
 Outright termination violates due process.285
 Investigation still required even if incident was witnessed by many.286
 Meeting, dialogue, consultation or interview is not the hearing required by law. It may not be a
substitute for the actual holding of a hearing.287
 Prior consultation with union is not part of the due process requirement.288
 Cross-examination or confrontation of witnesses is not necessary in company investigations.289
 Co-conspirator‟ s confession is not sufficient to merit dismissal.290
 If a party was not initially given a chance to be heard at the company level, but later was given
full opportunity to submit position papers or present his case and arguments before the Labor
Arbiter, this defect is cured.291 But if the dismissal is not justified, this principle does not apply.292
11. INSTANCES WHERE HEARING IS NOT REQUIRED.
Hearing is not required in the following cases:
1. Termination of project, seasonal, casual or fixed-term employment.
2. Termination of probationary employment on the ground of failure of the probationary
employee to qualify as a regular employee in accordance with reasonable standards made
known to him at the start of the employment.293
3. Termination due to abandonment of work.
4. Termination due to authorized causes under Article 283 (installation of labor-saving device,
redundancy, retrenchment or closure of business or cessation of operations) . In such cases,
there are no allegations which the employees should refute and defend themselves from.294
 5. Termination due to disease under Article 284.295
6. Termination by the employee (resignation) under Article 285.
7. Termination after 6 months of bona-fide suspension of operation under Article 286. For
purposes of satisfying due process, what is required is simply that the notices provided
under Article 283 be served to both the affected employees and the Department of Labor
and Employment at least one (1) month before the termination becomes effective.296
8. Termination due to retirement under Article 287.
9. Termination due to expiration of tenure made coterminous with lease.297
10. Termination due to closure or stoppage of work by government authorities when non-
compliance with the law or implementing rules and regulations poses grave and imminent
danger to the health and safety of workers in the workplace.298
11. Termination due to expiration of contractual employment in a legitimate contracting or
subcontracting arrangement.299
12. Termination of employee who has admitted his guilt for the offense charged.300
12. SEVEN (7) STANDARD SITUATIONS IN TERMINATION CASES.
The rules on termination of employment in the Labor Code and pertinent jurisprudence are
applicable to seven (7) different situations, namely:
1. The dismissal was for a just cause under Article 282, for an authorized cause under Article
283, or for health reasons under Article 284, and due process was observed - This termination
is LEGAL.301
2. The dismissal was without a just or authorized cause but due process was observed - This
termination is ILLEGAL.302
3. The dismissal was without a just or authorized cause and due process was not observed - This
termination is ILLEGAL.303
4. The dismissal was for a just or authorized cause but due process was not observed - This
termination is LEGAL.304
5. The dismissal was for a non-existent cause - This termination is ILLEGAL.305
6. The dismissal was not supported by any evidence of termination - This termination
is NEITHER LEGAL NOR ILLEGAL as there is no dismissal to speak
of.306 Reinstatement is ordered not as a relief for illegal dismissal but on equitable ground.
7. The dismissal was brought about by the implementation of a law - This termination
is LEGAL.307
13. INDEMNITY IN THE FORM OF NOMINAL DAMAGES.
a. Application of the Agabon and Jaka doctrines.
Termination for a just cause or authorized cause but without affording the employee
procedural due process should no longer be considered illegal or ineffectual308 but legal.
Consequently, the employee will not be ordered reinstated but will be awarded an indemnity in
the form of nominal damages the amount of which will depend on whether the termination is
grounded on just cause or authorized cause, thus:

1. If based on just cause - P30,000.00 per Agabon doctrine.309

2. If based on authorized cause - P50,000.00 per Jaka doctrine.310

According to Jaka, the indemnity is “stiffer” in case of authorized cause termination because,
unlike in the case of just cause termination where the employee has committed a wrongful act, an
employee dismissed based on authorized cause has not committed any blameworthy act nor any
delinquency or culpability on his part. Instead, the dismissal process is initiated by the employer‟ s
exercise of his management prerogative, i.e. , when the employer opts to install labor saving devices,
when he decides to cease business operations or when, as in this case, he undertakes to implement a
retrenchment program
b. Some principles under the Agabon doctrine.
 1. Measure of penalty or indemnity - no longer full backwages but nominal damages.
2. Since the dismissal is considered legal, any award of backwages must be deleted and
replaced by award of indemnity.311
3. Amount of nominal damages may be reduced.312 But as far as the upping of the amount is
concerned, a survey of Supreme Court decisions indicates that there has yet been no
decision increasing the indemnity beyond what has been prescribed in Agabon and Jaka.

------------oOo------------

Chapter Four
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
C. Reliefs for Illegal Dismissal
1. Reinstatement
a. Pending appeal (Art. 223, Labor Code)
b. Separation pay in lieu of reinstatement
2. Backwages
a. Computation
b. Limited backwages
C.
RELIEFS FOR ILLEGAL DISMISSAL
1. RELIEFS UNDER ARTICLE 279 OF THE LABOR CODE.
Under this article,1 an illegally dismissed employee is entitled to the following reliefs:
(1) Reinstatement without loss of seniority rights and other privileges;
(2) Full backwages, inclusive of allowances; and
(3) Other benefits or their monetary equivalent.
2. OTHER RELIEFS NOT FOUND IN ARTICLE 279 BUT AWARDED IN ILLEGAL
DISMISSAL CASES.
The following reliefs that are awarded in illegal dismissal cases are missing in Article 279:
(1) Award of separation pay in lieu of reinstatement.
(2) Award of penalty in the form of nominal damages in case of termination due to just or
authorized cause but without observance of procedural due process.
(3) Reliefs to illegally dismissed employee whose employment is for a fixed period. The
proper relief is only the payment of the employee‟ s salaries corresponding to the
unexpired portion of the employment contract.
(4) Award of damages and attorney‟ s fees.
(5) Award of financial assistance in cases where the employee‟ s dismissal is declared legal
but because of long years of service, and other considerations, financial assistance is
awarded.
(6) Imposition of legal interest on separation pay, backwages and other monetary awards.
1.
REINSTATEMENT
a.
PENDING APPEAL
(ArtIcle 223, Labor Code)
 b.
SEPARATION PAY
IN LIEU OF REINSTATEMENT
1. VARIOUS PROVISIONS OF THE LABOR CODE ENUNCIATING THE REMEDY OF
REINSTATEMENT.
The Labor Code grants the remedy of reinstatement in various forms and situations. Its
provisions recognizing reinstatement as a remedy are as follows:
1. Article 223 which provides for reinstatement of an employee whose dismissal is declared
illegal by the Labor Arbiter. This form of reinstatement is self-executory and must be implemented even
during the pendency of the appeal that may be instituted by the employer.
2. Article 263 [g] which provides for automatic return to work of all striking or locked-out
employees, if a strike or lockout has already taken place, upon the issuance by the DOLE Secretary of
an assumption or certification order. The employer is required to immediately resume operation and
readmit all workers under the same terms and conditions prevailing before the strike or lockout.
3. Article 277 [b] which empowers the DOLE Secretary to suspend the effects of termination
pending the resolution of the termination dispute in the event of a prima facie finding by the
appropriate official of the DOLE before whom such dispute is pending that the termination may cause a serious
labor dispute or is in implementation of a mass lay-off.
4. Article 279 which grants reinstatement as a relief to an employee whose dismissal is
declared illegal in a final and executory judgment.
5. Article 286 which involves bona-fide suspension of operation for a period not exceeding six (6)
months or the rendition by an employee of military or civic duty. It is required under this provision that
the employer should reinstate its employees upon resumption of its operation which should be done before
the lapse of said six-month period of bona-fide suspension of operation or after the rendition by the employees
of military or civic duty.
(NOTE: The reinstatement referred to in the Syllabus pertains only to the reinstatement
under Article 223. Discussion, therefore, will focus on this relief)

a.
REINSTATEMENT PENDING APPEAL
(Article 223, Labor Code)
1. ORDER OF REINSTATEMENT ISSUED BY LABOR ARBITER, IMMEDIATELY
EXECUTORY EVEN PENDING APPEAL.
Article 2232 of the Labor Code, as amended,3 provides that an order of reinstatement by the
Labor Arbiter is self-executory and thereforeimmediately executory even pending appeal. Being self-
executory, no writ of execution is required to be issued to implement it.4 The concept of reinstatement
under Article 223 is to restore the illegally dismissed employee to a state or condition from which he
has been removed or separated.5 To underscore its immediate executory nature, the 2011 NLRC Rules
of Procedure provide that the perfection of an appeal shall stay the execution of the decision of the
Labor Arbiter except execution for reinstatement pending appeal.6
Once an appeal is filed, the Labor Arbiter loses jurisdiction over the case. Consequently, all
pleadings and motions pertaining to the appealed case are required to be addressed to and filed with the
Commission (NLRC) . This rule, however, cannot be invoked to prejudice the immediate
reinstatement of an employee pending appeal.7
2. DISTINGUISHED FROM REINSTATEMENT ISSUED BY NLRC, CA AND SC.
By way of distinction, while writ of execution is not required in case reinstatement is ordered
by the Labor Arbiter, it is necessary in case reinstatement is ordered by the NLRC on appeal or by the
CA and the Supreme Court, as the case may be. Only the Labor Arbiter‟ s reinstatement order is self-
executory or immediately executory.8
3. DISTINGUISHED FROM REINSTATEMENT UNDER ARTICLE 279.

The following distinctions may be cited between reinstatement under Article 223 and Article 279
of the Labor Code:
 (1) Finality. - The reinstatement under Article 223 has not attained finality as in fact it is the
subject of an appeal; while that contemplated under Article 279 has already become final and
executory.

(2) Employer’s option to reinstate. - The reinstatement in the former is subject to the
exercise of option by the employer; while that in the latter, no such option is available to the
employer except to reinstate the employee to his former position or to a substantially equivalent
position.

(3) On nature of duty of Labor Arbiter to implement order. - In the former, it is ministerial
upon the Labor Arbiter to implement his order of reinstatement which is self-executory in
character;9 while in the latter, it is not ministerial as it requires the filing of a motion for the issuance
of writ of execution before the Labor Arbiter can implement the order of reinstatement.

(4) On necessity for issuance of writ of execution. - In the former, a writ of execution is not
necessary to enforce the reinstatement order; while in the latter, a writ of execution is indispensable to
effect reinstatement.
4. REINSTATEMENT PENDING APPEAL APPLIES TO ALL KINDS OF ILLEGAL
DISMISSAL CASES.
The concept of reinstatement pending appeal under Article 223 contemplates all kinds of illegal
dismissal cases. The nature of the ground invoked to justify the dismissal which subsequently is declared
illegal is inconsequential in determining the validity of this remedy.
The Court of Appeals, in the 2010 case of C. Alcantara & Sons, Inc. v. CA,10 denied the
reinstatement of the ordinary union members who participated in the illegal strike but whose dismissal
was found to have been illegally effected since they did not commit any illegal acts in the course of the
strike. The CA justified its denial by ruling that the reinstatement pending appeal provided under
Article 223 contemplates illegal dismissal or termination cases and not cases under Article 264.11 The
Supreme Court, however, pronounced that this perceived distinction does not find support in the
provisions of the Labor Code. The grounds for termination under Article 264 are based on prohibited
acts that employees could commit during a strike. On the other hand, the grounds for termination
under Articles 282,12 28313 and 28414 are based on the employee‟ s conduct in connection with his
assigned work. Still, Article 217,15 which defines the powers of Labor Arbiters, vests in the latter
jurisdiction over all termination cases, whatever be the grounds given for the termination of
employment. Consequently, Article 223, which provides that the decision of the Labor Arbiter
reinstating a dismissed employee shall immediately be executory pending appeal, cannot but apply to
all terminations irrespective of the grounds on which they are based.
5. REINSTATEMENT PENDING APPEAL DOES NOT APPLY WHEN THE DISMISSAL IS
LEGAL BUT REINSTATEMENT IS ORDERED FOR SOME REASONS LIKE EQUITY AND
COMPASSIONATE JUSTICE.
The principle of reinstatement pending appeal applies only in case there is a finding of
illegality of dismissal by the Labor Arbiter. In other words, if the dismissal is not illegal as in fact it was
declared valid and legal by the Labor Arbiter, the reinstatement granted by reason of equity and
compassionate justice cannot be executed pending appeal; neither can the employer be held liable for payment
of any reinstatement wages.

This is the gist of the Lansangan doctrine which was enunciated pursuant to and by virtue of
16
the pronouncement in Lansangan v. Amkor Technology Philippines, Inc. The petitioners in this case
were found by the Labor Arbiter to have committed a dishonest act consisting of:
“[s]wiping another employees‟ [sic] I.D. card or requesting another employee to swipe one
‟ s I.D. card to gain personal advantage and/or in the interest of cheating”, an offense of
dishonesty punishable as a serious form of misconduct and fraud or breach of trust under
Article 297 [282] of the Labor Code:
 xxx
which allows the dismissal of an employee for a valid cause.”

The Labor Arbiter consequently ruled that the dismissal was valid and legal but he ordered
their reinstatement to their former positions without backwages “as a measure of equitable and
compassionate relief” owing mainly to petitioners’ prior unblemished employment records, show of
remorse, harshness of the penalty and defective attendance monitoring system of respondent
company. Based on these facts, the Supreme Court noted that the principle of reinstatement pending
appeal under Article 223 on which the appellate court relied, finds no application in the present case.
Article 223 concerns itself with an interim relief, granted to a dismissed or separated employee while
the case for illegal dismissal is pending appeal. It does not apply where there is no finding of illegal
dismissal, as in the present case. Further, petitioners are not also entitled to full backwages as their
dismissal was not found to be illegal. Agabon v. NLRC,17 so states - payment of backwages and other
benefits is justified only if the employee was unjustly dismissed.
6. TWO (2) OPTIONS OF THE EMPLOYER.
The employer has only 2 options both of which involve reinstatement:
(1) Actual reinstatement, i.e. , the employee should be reinstated to his position which he
occupies prior to his illegal dismissal under the same terms and conditions prevailing
prior to his dismissal or separation or, if no longer available, to a substantially-
equivalent position; or
(2) Payroll reinstatement, i.e. , reinstatement of the employee in the payroll of the
company without requiring him to report back to his work.18
There is no way the employer can disregard the reinstatement order. Posting of a bond does
not stay the execution of immediate reinstatement.19
7. OBLIGATION OF EMPLOYER TO NOTIFY REINSTATED EMPLOYEE OF HIS
CHOICE OF OPTION.
Employer has the obligation to notify employee of his choice of option.20 Under the 2011
NLRC Rules of Procedure,21 it is required that the employer should submit a report of compliance
within ten (10) calendar days from receipt of the Labor Arbiter‟ s decision, disobedience to which clearly
denotes a refusal to reinstate.

8. INSTANCES WHEN WRIT OF EXECUTION OF LABOR ARBITER’S REINSTATEMENT ORDER IS STILL

REQUIRED.

Under the 2011 NLRC Rules of Procedure,22 there are two (2) instances when a writ of
execution should still be issued immediately by the Labor Arbiter to implement his order of
reinstatement, even pending appeal, viz:
(1) When the employer disobeys the Rules-prescribed directive23 to submit a report of
compliance within ten (10) calendar days from receipt of the decision; or
(2) When the employer refuses to reinstate the dismissed employee.
The Labor Arbiter shall motu proprio issue a corresponding writ to satisfy the reinstatement
wages as they accrue until actual reinstatement or reversal of the order of reinstatement.24
The employee need not file a motion for the issuance of the writ of execution since the Labor
Arbiter shall thereafter motu proprio issue the writ.25 Employer may be cited for contempt for his
refusal to comply with the order of reinstatement.26
Employer is liable to pay the salaries for the period that the employee was ordered reinstated
pending appeal even if his dismissal is later finally found to be legal on appeal.27
9. EFFECT OF FAILURE OF EMPLOYEE ORDERED REINSTATED PENDING APPEAL TO
REPORT BACK TO WORK AS DIRECTED BY EMPLOYER.
The provision of Article 223 on reinstatement pending appeal is intended for the benefit of the
employee and cannot be used to defeat his own interest. The law mandates the employer to either admit
the dismissed employee back to work under the same terms and conditions prevailing prior to his
dismissal or to reinstate him in the payroll to abate further loss of income on the part of the employee
during the pendency of the appeal. But the language of the law should not be stretched as to give the
employer the right to remove an employee who fails to immediately comply with the reinstatement
order, especially when there is a reasonable explanation for his failure. 28
In the 2011 case of Pfizer, Inc. v. Velasco,29 petitioner Pfizer contends that the Court of
Appeals committed a serious but reversible error when it ordered petitioner Pfizer to pay respondent
Velasco wages from the date of the Labor Arbiter‟ s decision ordering her reinstatement until
November 23, 2005, when the Court of Appeals rendered its decision declaring Velasco‟ s dismissal
valid. During the pendency of the case with the Court of Appeals and prior to its November 23,
2005 decision, petitioner claimed that it had already required respondent to report for work on July 1,
2005. However, according to petitioner, it was respondent who refused to return to work when she
wrote petitioner, through counsel, that she was opting to receive her separation pay and to avail of
petitioner‟ s early retirement program. In petitioner Pfizer‟ s view, it should no longer be required to pay
wages considering that it was allegedly ready to reinstate respondent as of July 1, 2005 but it was
respondent who unjustifiably refused to report for work. According to petitioner, it would be
tantamount to allowing respondent to choose “payroll reinstatement” when by law it was the employer
which had the right to choose between actual and payroll reinstatement.
The Supreme Court, however, found this contention of petitioner devoid of merit considering the
following:
(1) Petitioner waited for the resolution of its appeal to the NLRC and, only after it was ordered by the
Labor Arbiter to pay the amount ofP1,963,855.00 representing respondent ‟ s full backwages from
December 5, 2003 up to May 5, 2005, did petitioner decide to require respondent to report back to work via the
Letter dated June 27, 2005.
(2) The said letter does not conform to the directive in Article 223 that an employee entitled
to reinstatement “shall either be admitted back to work under the same terms and
conditions prevailing prior to his dismissal or separation or, at the option of the employer, merely
reinstated in the payroll.”
(3) The letter of respondent to petitioner indicating her preference for the payment of
separation pay in lieu of reinstatement is of no moment. It does not have the effect of taking away the option
from the employer to effect actual or payroll reinstatement.
10. SOME PRINCIPLES ON REINSTATEMENT PENDING APPEAL UNDER ARTICLE 223.
 Reinstatement pending appeal under Article 223 is constitutional.30
 It is similar to return-to-work order.31
 The Labor Arbiter cannot exercise option of employer by choosing payroll reinstatement pending
appeal.32
 If the former position is already filled up, the employee ordered reinstated under Article 223
should be admitted back to work in a substantially equivalent position.33
 Reinstatement to a position lower in rank is not proper.34
 Reinstatement cannot be refused on the basis of the employment elsewhere of the employee
ordered reinstated.35
 In case of two successive dismissals, the order of reinstatement pending appeal under Article 223
issued in the first case shall apply only to thefirst case and should not affect
the second dismissal.36
 The failure of the illegally dismissed employee who was ordered reinstated to report back to
work does not give the employer the right to remove him, especially when there is a reasonable
explanation for his failure.37
 No reinstatement pending appeal should be made when antipathy and antagonism exist.38
  If reinstatement is not stated in the Labor Arbiter‟ s decision (neither in the dispositive portion
nor in the text thereof) , reinstatement is not warranted.39

(NOTE: For discussion on the effect of NLRC’s reversal of the Labor Arbiter’s order of
reinstatement, please read the comments on the topic:“VIII. PROCEDURE AND
JURISDICITON, xxx B. National Labor Relations Commission (NLRC) , xxx 2. Effect of
NLRC Reversal of Labor Arbiter’s Order of Reinstatement,” infra)

b.
SEPARATION PAY IN LIEU OF REINSTATEMENT

1. NO PROVISION IN THE LABOR CODE EXPRESSLY GRANTING SEPARATION PAY IN

LIEU OF REINSTATEMENT.
Article 279 expressly mandates only reinstatement and never the alternative remedy of
separation pay in lieu thereof.
But jurisprudence clearly enunciates the award of separation pay in the event reinstatement
is not possible or feasible.40 Undeniably, it is a recourse based on equity that has been sanctioned by
the Supreme Court in a catena of cases.41
2. SPECIFIC INSTANCES WHERE SEPARATION PAY IN LIEU OF REINSTATEMENT
WAS AWARDED.
It is now well-settled that separation pay in lieu of reinstatement should be awarded in the
following situations:
(1) Where the continued relationship between the employer and the employee is no longer
viable due to the strained relations and antagonism between them (Doctrine of Strained
Relations) .42
(2) When reinstatement proves impossible, impracticable, not feasible or unwarranted for
varied reasons and thus hardly in the best interest of the parties such as:
(a) Where the employee has already been replaced permanently as when his position has
already been taken over by a regular employee and there is no substantially equivalent
position to which he may be reinstated.43
(b) Where the dismissed employee‟ s position is no longer available at the time of
reinstatement for reasons not attributable to the fault of the employer.44
(c) When there has been long lapse or passage of time that the employee was out of
employer‟ s employ from the date of the dismissal to the final resolution of the case45 or
because of the realities of the situation.46
(d) By reason of the injury suffered by the employee.47
(e) The employee has already reached retirement age under a Retirement Plan.48
(f) When the illegally dismissed employees are over-age or beyond the compulsory
retirement age and their reinstatement would unjustly prejudice their employer.49
(g) When reinstatement of a security guard can no longer be ordered because he was past
the age qualification for a security guard license.50
(h) When the general sales agency contract between the employer and its client has been
terminated and reinstatement is no longer feasible.51
(i) Takeover of the business of the employer by another company and there is no
agreement regarding assumption of liability by the acquiring company.52
(3) Where the employee decides not to be reinstated as when he does not pray for
reinstatement in his complaint or position paper but asked for separation pay instead.53
(4) When reinstatement is rendered moot and academic due to supervening events, such as:
(a) Death of the illegally dismissed employee.54
(b) Declaration of insolvency of the employer by the court.55
(c) Fire which gutted the employer‟ s establishment and resulted in its total destruction.56
(d) In case the establishment where the employee is to be reinstated has closed or ceased
operations.57
 (5) To prevent further delay in the execution of the decision to the prejudice of private
respondent.58
(6) Other circumstances59 such as (a) when reinstatement is inimical to the employer‟ s
interest;60 (b) reinstatement does not serve the best interests of the parties involved;61 (c)
the employer is prejudiced by the workers‟ continued employment;62 or (d) that it will not
serve any prudent purpose as when supervening facts transpired which made execution
unjust or inequitable.63
3. COMPONENTS OF SEPARATION PAY IN LIEU OF REINSTATEMENT PER
PREVAILING JURISPRUDENCE.
The amount of separation pay that should be paid in lieu of reinstatement is not provided
under the Labor Code. Jurisprudence, however, dictates that the following should be included in its
computation:
(1) The amount equivalent to at least one (1) month salary or to one (1) month salary for every
year of service, whichever is higher, a fraction of at least six (6) months being considered
as one (1) whole year.64
(2) Allowances that the employee has been receiving on a regular basis.65
4. PERIOD COVERED.
a. From start of employment up to the date of finality of decision.
Separation pay in lieu of reinstatement is computed from the commencement of employment
up to the time of termination, including the imputed service for which the employee is entitled to
backwages.66 More definitively, it should be reckoned from the first day of employmentuntil the
finality of the decision.67
b. When employer has already ceased its operations.
When employer has ceased its business operations, the separation pay in lieu of reinstatement
should be computed only up to that date of closure.68
5. SALARY RATE TO BE USED IN THE COMPUTATION.
The salary rate prevailing at the end of the period of putative service should be the basis for
computation which refers to the period of imputed service for which the employee is entitled to
backwages.69
6. SOME PRINCIPLES ON SEPARATION PAY IN LIEU OF REINSTATEMENT.
Award of separation pay in lieu of reinstatement is not proper if there is no finding of illegality of
dismissal. This is so because the principal remedy of reinstatement may only be granted in case the
dismissal is illegal.70
Separation pay, as a substitute remedy, is only proper for reinstatement but not for backwages.71
Separation pay and backwages are not inconsistent with each other. Hence, both may be awarded
to an illegally dismissed employee.72 The payment of separation pay is in addition to payment of
backwages.73
Employer does not have the option to choose between actual reinstatement and separation pay in
lieu thereof. Actual reinstatement has the primacy as the proper relief to which an illegally
dismissed employee is entitled. Payment of separation pay should be ordered only in the event that
there is a showing that reinstatement is no longer possible by reason of the justifications allowed
under established jurisprudence.74
Reinstatement cannot be granted when what is prayed for by employee is separation pay in lieu
thereof.75
Grant of separation pay in lieu of reinstatement converts the award of reinstatement into a
monetary award; hence, legal interest may be imposed thereon.76
STRAINED RELATIONS RULE
1. STRAINED RELATIONS OR ANTAGONISM MAY EFFECTIVELY BAR
REINSTATEMENT.
 The doctrine of “strained relations” or “antipathy and antagonism” or “irretrievable
estrangement” applies when reinstatement will no longer be in the best interest of both the employee
and the employer considering the animosity and antagonism that exist between them brought about by
the filing of the labor case.77
However, according to the 2013 case of Leopard Security and Investigation Agency v.
Quitoy,78 standing alone, the doctrine of strained relations will not justify an award of separation pay, a
relief granted in instances where the common denominator is the fact that the employeewas
dismissed by the employer. Even in cases of illegal dismissal, thedoctrine of strained relations is not
applied indiscriminately as to bar reinstatement, especially when the employee has not indicated an
aversion to returning to work or does not occupy a position of trust and confidence or has no say in the
operation of the employer ‟ s business. Although litigation may also engender a certain degree of
hostility, it has likewise been ruled that the understandable strain in the parties‟ relations would not
necessarily rule out reinstatement which would, otherwise, become the rule rather than the exception in
illegal dismissal cases.79
In a plethora of cases, the Supreme Court has been consistent in its holding that the existence
of strained relations between the employer and the illegally dismissed employee may effectively bar
reinstatement of the latter.80
2. SOME PRINCIPLES ON STRAINED RELATIONS.
 Strained relations must be proved and demonstrated as a fact.81
 Litigation, by itself, does not give rise to strained relations that may justify non-reinstatement. The
filing of the complaint for illegal dismissal does not by itself justify the invocation of the doctrine
of strained relations. 82
 No strained relations should arise from a valid and legal act of asserting one‟ s right; otherwise, an
employee who asserts his right could be easily separated from the service by merely paying his
separation pay on the pretext that his relationship with his employer had already become strained.83
 Indeed, if the strained relations engendered as a result of litigation are sufficient to rule out
reinstatement, then reinstatement would become the exception rather than the rule in cases of
illegal dismissal.84
 The nature of position is material in determining the validity of “strained relations.” If the
nature of the position requires that trust and confidence be reposed by the employer upon the
employee occupying it as would make reinstatement adversely affect the efficiency, productivity
and performance of the latter, strained relations may be invoked in order to justify non -
reinstatement. Where the employee, however, has no say in the operation of his employer ‟ s
business, invocation of this doctrine is not proper.85
 Non-settlement of dispute after long period of time is not indicative of strained relations.86
 The refusal of an employee to be reinstated is indicative of strained relations.87
 Criminal prosecution confirms the existence of “strained relations” which would render the
employee‟ s reinstatement highly undesirable.88
 A managerial employee should not be reinstated if strained relations exist. 89
 In case of new ownership of the establishment, reinstatement is proper if no strained relations
exist with new owner.90

2.
BACKWAGES91
1. CONCEPT.
Under Article 279, an employee who is unjustly dismissed is entitled not only to
reinstatement, without loss of seniority rights and other privileges, but also to the payment of his full
backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the
time his compensation was withheld from him (which, as a rule, is from the time of his illegal
dismissal) up to the time of his actual reinstatement.92
 The raison d‟ etre for the payment of backwages is equity. Backwages represent
compensation that should have been earned by the employee but were lost because of the unjust or
illegal dismissal.93
Simply stated, an employee whose dismissal is found to be illegal is considered not to have
left his office so that he is entitled to all the rights and privileges that accrue to him by virtue of the
office that he held.94
But if the dismissal is not illegal, an award of backwages is not proper.95
2. THE BUSTAMANTE DOCTRINE.
In 1996, the Supreme Court changed the rule96 on the reckoning of backwages. It announced a
new doctrine in the case of Bustamante v. NLRC,97 which is now known as
the Bustamante doctrine. Under this rule, the term “full backwages” should mean exactly that, i.e. ,
without deducting from backwages the earnings derived elsewhere by the concerned employee during
the period of his illegal dismissal.98
(a)
COMPUTATION
1. COMPONENTS.
The components of backwages are as follows:
1. Salaries or wages computed on the basis of the wage rate level at the time of the illegal
dismissal and not in accordance with the latest, current wage level of the employee‟ s
position.99
2. Allowances and other benefits regularly granted to and received by the employee should be
made part of backwages.100 Examples:
a. Emergency living allowances and 13 month pay mandated under the law.101
th

b. Fringe benefits or their monetary equivalent.102

c. Transportation and emergency allowances.103
d. Holiday pay, vacation and sick leaves and service incentive leaves.104
e. Just share in the service charges.105
f. Gasoline, car and representation allowances.106
g. Any other regular allowances and benefits or their monetary equivalent.107
2. SOME PRINCIPLES ON BACKWAGES.
 The computation of said regularly paid allowances and benefits as part of backwages should be
made up to the date of reinstatement as provided under Article 279 of the Labor Code or, if
reinstatement be not possible, up to the finality of the decision granting full backwages.108
 Salary increases during period of unemployment are not included as component in the
computation of backwages.109
 Dismissed employee‟ s ability to earn is irrelevant in the award of backwages.110
 The failure to claim backwages in a complaint for illegal dismissal is a mere procedural lapse
which cannot defeat a right granted under substantive law. Hence, the illegally dismissed
employee may still be awarded backwages despite said failure.111
 When Labor Arbiter or NLRC failed to award any backwages, the same may be corrected on
appeal even if worker did not appeal.112
 In case reinstatement is ordered, full backwages should be reckoned from the time the
compensation was withheld (which, as a rule, is from the time of illegal dismissal) up to the time
of reinstatement, whether actual or in the payroll. 113
 If separation pay is ordered in lieu of reinstatement, full backwages should be computed from
the time of illegal dismissal until the finalityof the decision. The justification is that along with the
finality of the Supreme Court‟ s decision, the issue on the illegality of the dismissal is finally laid to
rest.114
  The rule is different if employment is for a definite period. The illegally dismissed fixed-term
employee is entitled only to the payment of his salaries corresponding to the unexpired portion of
his fixed-term employment contract.115
 If the illegally dismissed employee has reached the optional retirement age of 60 years, his
backwages should only cover the time when he was illegally dismissed up to the time when he
reached 60 years. Under Article 287, 60 years is the optional retirement age.116
 If the employee has reached 65 years of age or beyond, his full backwages should be computed
only up to said age. The contention of the employer that backwages should be reckoned only up to
age 60 cannot be sustained.117 In Jaculbe v. Silliman University, 118 it was declared that since
petitioner has already reached seventy-one (71) years of age at the time the decision was rendered
by the Supreme Court in this case, the award of backwages in her favor must be computed from
the time of her illegal dismissal up to her compulsory retirement age of sixty-five (65) .119
 If termination was made effective immediately, the backwages should be reckoned from the date
of the termination letter where such was stated.120
 If employer has already ceased operations, full backwages should be computed only up to the date
of the closure. To allow the computation of the backwages to be based on a period beyond that
would be an injustice to the employer.121
 If valid retrenchment supervened during the pendency of the case, full backwages should be
computed only up to the effectivity date of the retrenchment.122
 In case the employee dies during pendency of the case, his full backwages should be computed
from the time of his dismissal up to the time of his death.123
 The period of valid suspension is deductible from backwages.124
 Backwages should be reckoned from end of valid suspension.125
 Backwages should include period of preventive suspension.126
 Employer‟ s offer to reinstate does not forestall payment of full backwages.127
 Any amount received during payroll reinstatement is deductible from backwages.128
(b)
LIMITED BACKWAGES
1. VARIATIONS IN THE GRANT OF BACKWAGES.
The discussion above dwells on cases where backwages are granted in full in accordance with the
clear mandate of Article 279 of the Labor Code. However, in certain instances, backwages are not granted at
all or are granted but only for a limited amount.
The discussion below will point out the variations in the grant of backwages as follows:
(a) When reinstatement is granted without backwages; or
(b) When reinstatement is granted with limited backwages.
2. REINSTATEMENT WITHOUT BACKWAGES.
Under the following situations, reinstatement of an illegally dismissed employee is granted without
the accompanying backwages:
(1) When the dismissal is deemed too harsh a penalty;
(2) When the employer acted in good faith; or
(3) Where there is no evidence that the employer dismissed the employee.

Illustrative cases of the FIRST situation above:

(1) Associated Labor Unions-TUCP v. NLRC,129 where reinstatement with no backwages
was ordered because the penalty of dismissal imposed on the employee for committing theft of
company property was reduced to suspension due to mitigating circumstances. The justification was
that the entire period when the employee was out of job because of his dismissal should already be
considered as the period of his suspension; hence, he should no longer be entitled to backwages for the same
period.
(2) Yupangco Cotton Mills, Inc. v. NLRC,130 where, after finding that the employee was
illegally dismissed but at the same time guilty of misconduct, it was ruled that there was no grave
abuse of discretion in the resolution of the NLRC which meted only the penalty of suspension without
backwages.
(3) Pepsi-Cola Distributors of the Philippines, Inc. v. NLRC,131 where the employee filed a
leave of absence for one day after he suffered stomach ache and upon the advice of his doctor, he took a rest
for 25 days without prior leave. When he reported back for work, he was told that he had been dismissed for
being absent without leave. It was held that while he was at fault, the employee could not be dismissed. He was
ordered reinstated but he was denied backwages.
Illustrative cases of the SECOND situation above:
(1) In Itogon-Suyoc Mines, Inc. v. National Labor Relations Commission,132 the employee
was found guilty of breach of trust for stealing ore with high gold content. However, his dismissal was
considered drastic and unwarranted considering that he had rendered twenty three (23) years of service
without previous derogatory record and he was prematurely suspended during the pendency of the
case. Consequently, he was ordered reinstated but without granting him any backwages. The High
Court pronounced that “[t]he ends of social andcompassionate justice would therefore be served if
private respondent is reinstated but without backwages in view of petitioner's good faith.”
(2) Finding factual similarity with the foregoing case of Itogon-Suyoc, the Supreme Court, in
the 2013 case of Pepsi-Cola Products Philippines, Inc. v. Molon,133 deems it appropriate to render
the same disposition insofar as one of the respondents in this case was concerned - Saunder Santiago
Remandaban III. This case involves a strike which the DOLE Secretary certified to the NLRC for
compulsory arbitration. A return-to-work order was issued as a consequence of such certification.
However, Remandaban failed to report for work within twenty-four (24) hours from receipt of the said
order. Because of this, he was served with a notice of loss of employment status (dated July 30, 1999)
which he challenged, asserting that his absence on that day was justified because he had to consult a
physician regarding the persistent and excruciating pain of the inner side of his right foot. In ordering
his reinstatement but without backwages, the Supreme Court cited the following as its bases:
(a) While Remandaban was remiss in properly informing Pepsi of his intended absence, the
penalty of dismissal is too harsh for his infractions considering that his failure to report to
work was clearly prompted by a medical emergency and not by any intention to defy the
July 27, 1999 return-to-work order.
(b) Pepsi's good faith is supported by the NLRC's finding that
“the return-to-work order of the Secretary was taken lightly by Remandaban. ” In this
regard, considering Remandaban's ostensible dereliction of the said order, Pepsi could not
be blamed for sending him a notice of termination and eventually proceeding to dismiss
him.
(3) It was likewise held in the 2013 case of Integrated Microelectronics, Inc. v.
Pionella,134 on motion for reconsideration by petitioner, that the backwages135 should be deleted on the
grounds that (a) the penalty of dismissal was too harsh of a penalty to be imposed against Pionilla for
his infractions;136 and (b) petitioner IMI was in good faith when it dismissed Pionilla as his dereliction
of its policy on ID usage was honestly perceived to be a threat to the company‟ s security. In this respect,
since these concurring circumstances trigger the application of the exception to the rule on backwages as
enunciated in the above-cited cases, the Court found it proper to accord the same disposition and
consequently directed the deletion of the award of backwages in favor of Pionilla, notwithstanding the
illegality of his dismissal.
Illustrative cases of the THIRD situation above:
(1) In the 2012 case of Best Wear Garments v. De Lemos,137 where the records are bereft of
any showing of clear discrimination, insensibility or disdain on the part of petitioners in transferring
respondents - both sewers on piece-rate basis - to perform a different type of sewing job which would
amount to constructive dismissal. That respondents eventually discontinued reporting for work after
their plea to be returned to their former work assignments was their personal decision, for which the
petitioners should not be held liable particularly as the latter did not, in fact, dismiss them. Indeed,
there was no evidence that respondents were dismissed from employment. In fact, petitioners expressed
willingness to accept them back to work. There being no termination of employment by the employer,
the award of backwages cannot be sustained. It is well settled that backwages may be granted only when
there is a finding of illegal dismissal. In cases where there is no evidence of dismissal, the remedy is
reinstatement but without backwages.
(2) In the 2013 case of Leopard Security and Investigation Agency v. Quitoy,138 as well as
in the earlier case of Security and Credit Investigation, Inc. v. NLRC,139 reinstatement without
backwages was ordered because petitioners were found not to have dismissed respondents (security
guards) and that the latter, for their part, have not abandoned their employment.140
(3) Leonardo v. NLRC141 where the Supreme Court ordered the reinstatement sans
backwages of the employee (Fuerte) who was declared neither to have abandoned his job nor was he
constructively dismissed. As pointed out by the Court, in a case where the employee‟ s failure to work was
occasioned neither by his abandonment nor by a termination, the burden of economic loss is not rightfully
shifted to the employer. Each party must bear his own loss.
3. REINSTATEMENT WITH LIMITED BACKWAGES.
While in the aforementioned cases of illegal dismissal, the Supreme Court ordered the
employees‟ reinstatement but without backwages, there are also instances where the backwages were
not given in full but merely limited for the same reason of good faith on the part of the employer.
Illustrative cases where award of backwages was limited to 1 year:
(a) In San Miguel Corporation v. Javate, Jr. ,142 the High Court affirmed the consistent
findings and conclusions of the Labor Arbiter, the NLRC, and the Court of Appeals that the employee was
illegally dismissed since he was still fit to resume his work; but the employer‟ s liability was mitigated by
its evident good faith in terminating the employee‟ s services based on the terms of its Health, Welfare and
Retirement Plan. Hence, the employee was ordered reinstated to his former position without loss of
seniority and other privileges appertaining to him prior to his dismissal, but the award of backwages
waslimited to only one (1) year considering the mitigating circumstance of good faith attributed to the
employer.
(b) In Procter and Gamble Philippines v. Bondesto,143 the Supreme Court, while affirming
the illegality of the dismissal of the employee, did not grant him full backwages. It agreed with the
findings of the NLRC and the Court of Appeals that in view of the employee’s absences that were not
wholly justified, he should be entitled to backwages limited to one (1) year only.144
Illustrative case where award of backwages was limited to 2 years:
In Dolores v. NLRC,145 the employee was terminated for her continuous absence without
permission. Although it was found that the employee was indeed guilty of breach of trust and
violation of company rules, the High Court still declared the employee‟ s dismissal illegal as it was too
severe a penalty considering that she had served the employer company for 21 years, it was her first
offense, and her leave to study the French language would ultimately benefit the employer who no
longer had to spend for translation services. Even so, other than ordering the employee‟ s
reinstatement, the said employee was awarded backwages limited to a period of two (2) years, given that the
employer acted without malice or bad faithin terminating the employee‟ s services.
Illustrative case where award of backwages was limited to 5 years:
In its resolution on the motion for reconsideration filed by the petitioner in Victory Liner,
Inc. v. Race,146 the High Tribunal reduced and limited the original award of full backwages to five (5)
years in the light of the evident good faith of the employer. While petitioner‟ s argument that
respondent had already abandoned his job in 1994 was not upheld, the Court conceded that petitioner, given
the particular circumstances of this case, had sufficient basis to reasonably and in good faith deem
respondent resigned by 1998.

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Chapter Four
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
D. Preventive Suspension
D.
PREVENTIVE SUSPENSION1
1. LEGAL BASIS.
The Labor Code does not contain any provision on preventive suspension. The legal basis for
the valid imposition thereof is found in Sections 8 and 9, Rule XXIII, Book V of the Rules to
Implement the Labor Code.2
2. PURPOSE AND JUSTIFICATION.
Preventive suspension may be legally imposed against an errant employee only when his
alleged violation is the subject of an investigation. This remedy may thus be resorted to only while the
errant employee is undergoing an investigation for certain serious offenses. Consequently, its purpose
is to prevent him from causing harm or injury to the company as well as to his fellow employees. It is
justified only in cases where the employee‟ s continued presence in the company premises during the
investigation poses a serious and imminent threat to the life or property of the employer or of the
employee‟ s co-workers. Without this threat, preventive suspension is not proper.3
3. SOME PRINCIPLES ON PREVENTIVE SUSPENSION.
An employer has the right to preventively suspend the employee during the pendency of the
administrative case against him as a measure of self-protection.4
If the basis of the preventive suspension is the employee‟ s absences and tardiness, the imposition
of preventive suspension on him is not justified as his presence in the company premises does not
pose any such serious or imminent threat to the life or property of the employer or of the
employee‟ s co-workers simply “by incurring repeated absences and tardiness.” 5
The grounds of violation of the school rules and regulations on the wearing of uniform, tardiness
or absence, and maliciously spreading false accusations against the school, do not justify the
imposition of preventive suspension.6
The failure by an employee to attend a meeting called by his supervisor will not justify his
preventive suspension.7
Preventive suspension does not mean that due process may be disregarded.8
Preventive suspension is not a penalty.9 Preventive suspension, by itself, does not signify that the
company has already adjudged the employee guilty of the charges for which she was asked to
answer and explain.10
Preventive suspension is neither equivalent nor tantamount to dismissal.11
Preventive suspension should only be for a maximum period of thirty (30) days. After the lapse of the
30-day period, the employer is required to reinstate the worker to his former position or to a substantially
equivalent position.
During the 30-day preventive suspension, the worker is not entitled to his wages and other
benefits. However, if the employer decides, for a justifiable reason, to extend the period of
preventive suspension beyond said 30-day period, he is obligated to pay the wages and other
benefits due the worker during said period of extension. In such a case, the worker is not bound to
reimburse the amount paid to him during the extension if the employer decides to dismiss him
after the completion of the investigation.12
Extension of period must be justified. During the 30-day period of preventive suspension, the
employer is expected to conduct and finish the investigation of the employee‟ s administrative case.
The period of thirty (30) days may only be extended if the employer failed to complete the hearing
or investigation within said period due to justifiable grounds. No extension thereof can be made
based on whimsical, capricious or unreasonable grounds.13
Preventive suspension lasting longer than 30 days, without the benefit of valid extension, amounts
to constructive dismissal.14
Indefinite preventive suspension amounts to constructive dismissal. 15
 Failure to state the duration of the preventive suspension in the notice does not mean it is
indefinite. There is a reasonable and logical presumption that said suspension in fact has a duration
which could very well be not more than 30 days as mandated by law.16
Salaries should be paid for improperly-imposed preventive suspension.17
Period of preventive suspension of workers in the construction industry is only for 15 days.18
Preventive suspension is different from suspension of operation under Article 286 19 of the Labor
Code.20
Preventive suspension is different from “floating status.” 21

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Chapter Four
TERMINATION OF EMPLOYMENT
TOPICS PER SYLLABUS
E. Constructive Dismissal
E.
CONSTRUCTIVE DISMISSAL1
1. CONSTRUCTIVE DISMISSAL.
Constructive dismissal contemplates any of the following situations:
1) An involuntary resignation resorted to when continued employment is rendered
impossible, unreasonable or unlikely;
2) A demotion in rank and/or a diminution in pay; or
3) A clear discrimination, insensibility or disdain by an employer which becomes
unbearable to the employee that it could foreclose any choice by him except to forego his
continued employment.2
2. INVOLUNTARY RESIGNATION.
The termination initiated by the employee based on the just causes described and enumerated
in Article 2853 of the Labor Code is in the nature of involuntary resignation. Thus, an employee may
put an end to the employment relationship without need of serving any notice on the employer for any of the
following just causes:
(1) Serious insult by the employer or his representative on the honor and person of the
employee;
(2) Inhumane and unbearable treatment accorded the employee by the employer or his
representative;
(3) Commission of a crime or offense by the employer or his representative against the person
of the employee or any of the immediate members of his family; and
(4) Other causes analogous to any of the foregoing.4
Thus, unlike resignation without just cause under the same Article 2855 where the law requires
prior written notice, the employee may terminate his employment without serving any notice to the
employer if such is occasioned by any of the just causes mentioned above.
3. FORCED RESIGNATION.
There is forced resignation where the employee is made to do or perform an involuntary act -
submission or tender of resignation - meant to validate the action of management in inveigling, luring
or influencing or practically forcing the employee to effectuate the termination of employment, instead
of doing the termination himself.6
4. COMMON DENOMINATOR.
 Both involuntary and forced resignations are embraced within the concept of constructive
dismissal. The common character pervading involuntary or forced resignation or constructive dismissal
is the act of “quitting” from employment by the employee because of the attendant just causes, acts,
facts or circumstances which render the continued employment impossible, unreasonable or
unlikely.7 Thus, if there is no cessation of work, there can be no constructive dismissal.8
5. TEST OF CONSTRUCTIVE DISMISSAL.
The test of constructive dismissal is whether a reasonable person in the employee‟ s position
would have felt compelled to give up his position under the circumstances. It is an act amounting to
dismissal but made to appear as if it were not. In fact, the employee who is constructively dismissed
may be allowed to keep on coming to work. Constructive dismissal is, therefore, a dismissal in
disguise.9 The law recognizes and resolves this situation in favor of the employees in order to protect
their rights and interests from the coercive acts of the employer.10
6. VOLUNTARY RESIGNATION VS. CONSTRUCTIVE DISMISSAL.
Voluntary resignation is likewise distinct from constructive dismissal. For instance, it was
held in Concrete Aggregates v. NLRC,11 that an employee who tendered her voluntary resignation
and signed the quitclaim after receiving all the benefits due her for her separation cannot claim that she was
constructively dismissed. The fact of her transfer due to a new secretarial staffing pattern which she
objected to, or the alleged hostility on the part of her employer, cannot render nugatory the voluntary
nature of her resignation. She was not eased out much less was she forced to resign. This is a case of voluntary
resignation and not a constructive dismissal.
In Admiral Realty Company, Inc. [Admiral Hotel] v. NLRC,12 it was ruled that the transfer
of the location of an employee‟ s office from under the steps of the stairs to the kitchen which allegedly
caused her mental torture which forced her to resign does not amount to constructive dismissal but a
case of voluntary resignation. It was not shown that her transfer was prompted by ill will of
management. It merely involved a change in location of the office and not a change of her position.
An indication that the resignation was voluntary and does not constitute constructive dismissal
is the act of the employee who resigned and took a leave of absence on the date of effectivity of his
resignation and while on leave, he worked for the release of his clearance and the payment of his
13 month pay and leave pay benefits. In doing so, he, in fact, performed all that an employee normally
th

does after he resigns. If indeed he was forced into resigning, he would not have sought to be cleared by
his employer and to be paid the monies due him. The voluntary nature of his acts has manifested itself
clearly and belied his claim of constructive dismissal.13
An example of a resignation which was deemed indicative of constructive dismissal is the
2014 case of Dreamland Hotel Resort v. Johnson.14 Respondent, an Australian citizen, worked as
Operations Manager for about three (3) months with petitioner hotel but he was not paid his salaries
corresponding thereto, prompting him to tender his resignation letter, the tenor of which reads:
“I hereby tender my resignation to you, Mr[. ] Wes Prentice, Dreamland Resort, Subic,
Zambales, Philippines.
“Since joining Dreamland Resort & Hotel over three months ago, I have put my
heart and soul into the business. I have donated many hours of my personal time. I have
frequently worked seven days a week and twelve to thirteen hours a day. I am now
literally penniless, due totally to the fact that I have lent you and your resort/hotel
well over $200,000AU (approx 8million pesos) and your non-payment of wages to
me from 1 August 2007 as per Employment Agreement. xxx.15
st

The above statement only goes to show that while it was Johnson who tendered his
resignation, it was due to the petitioners‟ acts that he was constrained to resign. The petitioners cannot
expect Johnson to tolerate working for them without any compensation. It is impossible, unreasonable or
unlikely that any employee, such as Johnson, would continue working for an employer who does not pay him
his salaries.
7. ILLEGAL DISMISSAL VS. CONSTRUCTIVE DISMISSAL.
“Illegal dismissal” is readily shown by the act of the employer in openly and expressly
seeking the termination of employment of an employee; while “constructive
dismissal,” being dismissal in disguise, is not readily indicated by any similar act of the employer that would
openly and expressly show its desire and intent to terminate the employment relationship.
 More concretely, the employer in illegal dismissal cases would normally defend and justify the
termination but in constructive dismissal, there being no express dismissal to speak of, the employer
would normally contend that there was no termination at all.
In terms of evidence, in illegal dismissal cases, documentary, testimonial and other forms of
evidence are adduced by the employer to secure affirmation from the court of the validity of the
termination; in constructive dismissal, the employer, who normally denies the termination, would
advance arguments against the circumstantial evidence being presented by the employee to prove his
constructive dismissal.
As far as the reliefs under Article 27916 of the Labor Code are concerned, the same are
available to both illegal and constructive dismissal.
8. INSTANCES OF CONSTRUCTIVE DISMISSAL OR FORCED RESIGNATION.
 Denying to the workers entry to their work area and placing them on shifts “not by weeks but
almost by month” by reducing their workweek to three days.17
 Barring the employees from entering the premises whenever they would report for work in the
morning without any justifiable reason, and they were made to wait for a certain employee who
would arrive in the office at around noon, after they had waited for a long time and had left.18
 Instructing the employee to go on indefinite leave and asking him to return to work only after
more than three (3) years from the time he was instructed to go on indefinite leave during which
period his salaries were withheld.19
 Implementing a rotation plan for reasons other than business necessity.20
 Sending to an employee a notice of indefinite suspension which is tantamount to dismissal.21
 Demoting a worker or re-assigning him involving a demotion in rank or diminution of salaries,
benefits and other privileges.22
 Reducing the employee‟ s functions which were originally supervisory in nature and such
reduction is not grounded on valid grounds such as genuine business necessity.23
 Imposing indefinite preventive suspension without actually conducting any investigation. It was
only after almost one (1) year that the employer made known the findings in its investigation
which was conducted ex parte. 24
 Threatening a sickly employee with dismissal if he will not retire and promising employment to
his son and daughter. The employee retired and signed two (2) quitclaims entitled “Receipt and
Release” in favor of the company.25
 Forcing the employee to resign with threat that if he will not resign, he will file charges against
him that would adversely affect his chances for new employment.26
 Asking the employee to choose whether to continue as a faculty member or to withdraw as a
lawyer against the mayor with whom the former owes certain favors, makes the cessation from
employment of said employee not voluntary. Such act is in the nature of a contrivance to effect a
dismissal without cause.27
 Asking the employee to file a resignation on the condition or promise that she would be given
priority for re-employment and in consideration of immediately paying her two (2) months ‟
vacation which she desperately needed then because she was ill. The employer‟ s refusal in bad
faith to reemploy her despite its promise to do so amounted to illegal dismissal.28
 Changing the employee‟ s status from regular to casual constitutes constructive dismissal.29
 Offer made by a labor contractor to reassign its employees to another company but with no
guaranteed working hours and payment of only the minimum wage. The terms of the
redeployment thus became unacceptable for said employees and foreclosed any choice but to reject
the employer‟ s offer, involving as it does a demotion in status and diminution in pay.30
 Preventing the employee from reporting for work by ordering the guards not to let her in. This is
clear notice of dismissal.31
 Transfer of respondent employee from Credit and Collection Manager to Marketing Assistant
which resulted in demotion as it reduced his duties and responsibilities although there was no
corresponding diminution in his salary. In holding that there was constructive dismissal, the court
took note of the fact that the former position is managerial while the latter is clerical in nature.32
Reducing the number of trips of the drivers and shortening their workdays which resulted in the
diminution of their pay.33
  Forcing the employee to tender her resignation letter in exchange for her 13 month pay, the
th

reason being that the employee was found by the employer to have violated its no-employment-
for-relatives-within-the-third-degree-policy, she having been impregnated by a married co-
employee.34
9. EXAMPLES OF CASES WHERE FACTS PROVED CONSTRUCTIVE DISMISSAL.
1. Cosare v. Broadcom Asia, Inc. 35 - In this 2014, the Supreme Court declared petitioner as
having been constructively dismissed based on the facts and circumstances obtaining herein. It is clear
that the respondents already rejected Cosare‟ s continued involvement with the company. Even their
refusal to accept the explanation which Cosare tried to tender on April 2, 2009 further evidenced the
resolve to deny Cosare of the opportunity to be heard prior to any decision on the termination of his
employment. The respondents allegedly refused acceptance of the explanation as it was filed beyond
the mere 48-hour period which they granted to Cosare under the memo dated March 30, 2009.
However, even this limitation was a flaw in the memo or notice to explain which only further signified
the respondents‟ discrimination, disdain and insensibility towards Cosare, apparently resorted to by the
respondents in order to deny their employee of the opportunity to fully explain his defenses and
ultimately, retain his employment. The Court emphasized in King of Kings Transport, Inc. v.
Mamac,36 the standards to be observed by employers in complying with the service of notices prior to
termination which require compliance with the reasonable period of at least five (5) calendar days from
receipt of the notice within which to explain his side.
In sum, the respondents were already resolute on a severance of their working relationship
with Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents‟ full investigation on the matter. In addition to this, the fact that no further investigation
and final disposition appeared to have been made by the respondents on Cosare‟ s case only negated the
claim that they actually intended to first look into the matter before making a final determination as to
the guilt or innocence of Cosare. This also manifested from the fact that even before Cosare was
required to present his side on the charges of serious misconduct and willful breach of trust, he was
summoned to his superior‟ s office and was asked to tender his immediate resignation in exchange for
financial assistance.
2. Tuason v. Bank of Commerce.37 In this 2012 case, the Supreme Court ruled that petitioner
was forced to resign. Pressure was exerted on her to resign from her work. The Court has in fact
examined the exchange of communications between petitioner and the respondent officers of
respondent bank before it arrived at its ruling that petitioner was constructively dismissed. It was
proved, among others, that petitioner was replaced in her position while she was on leave. Like Tuason,
any reasonable person similarly situated would have felt compelled to give up her post as she was, in
fact, stripped of it considering that someone else was already discharging her functions and occupying
her office.
10. SOME PRINCIPLES ON CONSTRUCTIVE DISMISSAL OR INVOLUNTARY OR
FORCED RESIGNATION.
 Mere allegations of threat or force do not constitute evidence to support a finding of forced
resignation or constructive dismissal.38
 A threat to sue the employee is not unjust and will not amount to forced resignation or
constructive dismissal. For instance, a threat to file estafa case, not being an unjust act, but rather
a valid and legal act to enforce a claim, cannot at all be considered as intimidation. A threat to
enforce one‟ s claim through competent authority, if the claim is just or legal, does not vitiate
consent.39
 Employee who alleges that he was coerced or intimidated into resigning has the burden to prove
such claim.40
 Giving the employee the choice or option between resignation and investigation is not illegal.41
 The facts of the case should be considered to determine if there is constructive dismissal.42
 Voluntary resignation is different from constructive dismissal. An employee who tendered her
voluntary resignation and signed the quitclaim after receiving all the benefits due her for her
separation cannot claim that she was constructively dismissed.43
 An employee may be constructively dismissed and at the same time legally dismissed. The
case in point is Formantes v. Duncan Pharmaceuticals Phils. , Inc. 44 Petitioner45 was
constructively dismissed because, while still employed with the respondent, he was compelled to
resign and forced to go on leave. After being confronted with the complaint for sexual abuse
lodged by a subordinate female employee and before being required to explain his side, petitioner
was no longer allowed to participate in the activities of respondent company. His salary was no
longer remitted to him. His subordinates were directed not to report to him and the company
directed one of its district managers to take over his position and do his functions without prior
notice to him. He was required to explain his side on the issue of sexual abuse as well as the
charge of insubordination only after these things have already been done to him. However, his
dismissal was considered legal because there was a just cause for his dismissal from the service
consisting of his sexual abuse of a subordinate female employee which, although not cited in the
Notice of Termination served on him when he was terminated, was duly proved during the trial of
the case before the Labor Arbiter. Since the dismissal, although for a valid cause, was done
without due process of law, the employer was ordered to indemnify petitioner with nominal
damages in the amount of P30,000.00.

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