[MANAGEMENT PREROGATIVES] industrial establishments with HMOs.

At the time of the closure of the

CAPITOL MEDICAL V. MERIS ISU, Dr. Meris was already eligible for retirement under Capitol’s
September 16, 2005 | CARPIO MORALES, J. retirement plan; and the alleged lack of notice to the DOLE was never
raised in the appeal.
Petitioner/s: Capitol Medical Center and Dr. Thelma Navarette-Clemente
Respondents: Dr. Cesar Meris Issues/Ruling:
1. W/N the abolition of ISU was a valid exercise of management prerogative –
Doctrine: It would be stretching the intent and spirit of the law if a court were to NO, Capitol failed to sufficiently prove its good faith in closing the ISU.
unjustly interfere in management’s prerogative to close or cease its business  Employers are also accorded rights and privileges to assure their self-
operations just because said business operation or undertaking is not suffering from determination and independence and reasonable return of capital. This mass of
any loss.  As long as the company’s exercise of the same is in good faith to advance privileges comprises the so-called management prerogatives. However, the State
its interest and not for the purpose of defeating the rights of employees under the law has the right to determine whether such privilege is exercised in a manner that
or a valid agreement, such exercise will be upheld. The ultimate test of the validity of complies with the law and does not offend the protected rights of labor.
closure or cessation of establishment or undertaking is that it must be bona fide in  One of the rights accorded an employer is the right to close an establishment or
character. And the burden of proving such falls upon the employer. undertaking. The right to close the operation of an establishment or undertaking
is explicitly recognized under the Labor Code as one of the authorized causes in
Facts: terminating employment of workers, the only limitation being that the closure
 January 1974: Capitol Medical Center, Inc. hired Dr. Cesar Meris, one of its must not be for the purpose of circumventing the provisions on termination of
stockholders, to take charge of its Industrial Service Unit (ISU). employment embodied in the Labor Code.
o Dr. Meris performed dual functions of providing medical services to  “Article 283. Closure of establishment and reduction of personnel. – The
Capitol’s more than 500 employees and health workers as well as to employer may also terminate the employment of any employee due to the
employees and workers of companies having retainer contracts with it. installation of labor saving devices, redundancy, retrenchment to prevent losses
 March 1992: Dr. Meris received from Capitol’s president and chairman of the or the closing or cessation of operation of the establishment or
board, Dr. Thelma Navarette-Clemente, a notice advising him of the undertaking unless the closing is for the purpose of circumventing the provisions
management’s decision to close or abolish the ISU and the consequent of this Title, by serving a written notice on the workers and the Ministry of Labor
termination of his services as Chief thereof. and Employment at least one (1) month before the intended date thereof. In case
o Abolition was due to the “almost extinct demand for direct medical of termination due to the installation of labor saving devices or redundancy, the
services.” worker affected shall be entitled to a separation pay equivalent to at least his one
 Dr. Meris thus filed a complaint against Capitol and Dr. Clemente for illegal (1) month pay or to at least one (1) month pay for every year of service,
dismissal and reinstatement with claims for backwages, moral and exemplary whichever is higher. In case retrenchment to prevent losses and in cases of
damages, plus attorney’s fees. closures or cessation of operations of establishment or undertaking not due to
 LA: Abolition was a valid and lawful exercise of management prerogatives. serious business losses or financial reverses, the separation pay shall be
There was convincing evidence that ISU was being operated at a loss. Ordered equivalent to one (1) month pay or at least one-half (1/2) month pay for every
Capitol to pay Dr. Meris under the hospital retirement plan. year of service, whichever is higher. A fraction of at least six (6) months shall be
 NLRC: Modified. Set aside the directive for the payment of retirement benefits considered one (1) whole year.”
o The phrase "closures or cessation of operations of establishment or
because he did not retire. Instead, it ordered the payment of separation pay as
provided under Article 283 as he was discharged due to closure of ISU, to be undertaking" includes a partial or total closure or cessation.
charged against the retirement fund. o The phrase "closures or cessation not due to serious business losses or
 CA: Capitol’s evidence failed to meet the standard of sufficient and adequate financial reverses" recognizes the right of the employer to close or
proof of loss necessary to justify the abolition of the ISU. ISU’s “Analysis of cease his business operations even if he is not suffering from serious
Income and Expenses" which was prepared long after the dismissal was tainted business losses or financial reverses, as long as he pays his employees
with irregular entries. Further, ISU was not in fact abolished. Operation and termination pay in the amount corresponding to their length of service.
management merely changed hands from Dr. Meris to Dr. Clemente. There was  It would be stretching the intent and spirit of the law if a court were to unjustly
also no written notice to the DOLE of the ISU abolition having been made, interfere in management’s prerogative to close or cease its business operations
thereby violating the requirement embodied in Article 283. just because said business operation or undertaking is not suffering from any
 Hence, the present petition. loss.  As long as the company’s exercise of the same is in good faith to advance
o Capitol: CA’s conclusion that the ISU was not incurring losses is its interest and not for the purpose of defeating the rights of employees under the
arbitrary as it was based solely on the supposed increase in revenues law or a valid agreement, such exercise will be upheld.
without taking into account the "Analysis of Income and Expenses" o The ultimate test of the validity of closure or cessation of establishment
which shows that the unit operated at a loss; and that the demand for or undertaking is that it must be bona fide in character. And the burden
the services of ISU became almost extinct in view of the affiliation of of proving such falls upon the employer.
 In this case, Capitol failed to sufficiently prove its good faith in closing the ISU.
Even if the ISU were not incurring losses, its abolition or closure could be justified
on other grounds like that proffered by Capitol – extinct demand.
o However, the records of the case fail to impress that there was indeed
extinct demand for the medical services rendered by the ISU. The
number of client companies of the ISU increased from 11 to 18 from
1986 to 1991, as well as the number of patients from both industrial
corporations and Capitol employees.
o The "Analysis of Income and Expenses" was prepared by its internal
auditor, a relative of Dr. Clemente, and not by an independent external
auditor. It is the financial statements audited by independent external
auditors which constitute the normal method of proof of the profit and
loss performance of a company.
o The claimed losses are actually contradicted by the accounting records
of Capitol itself which show that ISU had increasing revenue.
 The termination of the services of Dr. Meris not having been premised on a just
or authorized cause, he is entitled to either reinstatement or separation pay if
reinstatement is no longer viable, and to backwages.
o Reinstatement, however, is not feasible in case of a strained employer-
employee relationship or when the work or position formerly held by the
dismissed employee no longer exists, as in the instant case.
o Dr. Meris is thus entitled to payment of separation pay at the rate of one
(1) month salary for every year of his employment, with a fraction of at
least six (6) months being considered as one(1) year, and full
backwages from the time of his dismissal from April 30, 1992 until the
expiration of his term as Chief of ISU or his mandatory retirement,
whichever comes first.

2. W/N moral or exemplary damages may be awarded – NO, not warranted by

the circumstances of the case.
 Additional facts must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, such as that the act of dismissal was attended by
bad faith or fraud, or was oppressive to labor, or done in a manner contrary to
morals, good customs, or public policy; and of course, that social humiliation,
wounded feelings, grave anxiety, etc., resulted therefrom.
 There being no moral damages, the award of exemplary damages does not lie.

Dispositive
WHEREFORE, the decision of the Court of Appeals dated February 15, 2002 is
hereby AFFIRMED with MODIFICATION. As modified, judgment is hereby rendered
ordering Capitol Medical Center, Inc. to pay Dr. Cesar Meris separation pay at the
rate of One (1) Month salary for every year of his employment, with a fraction of at
least Six (6) Months being considered as One (1) Year, full backwages from the time
of his dismissal from April 30, 1992 until the expiration of his term as Chief of the ISU
or his mandatory retirement, whichever comes first; other benefits due him or their
money equivalent; and attorney’s fees.