Daniel es Fiel a Dios

Facts:

Petitioner FASAP is the duly certified collective bargaining representative of PAL flight attendants and stewards, or collectively known as PAL cabin crew personnel. Respondent PAL is a domestic corporation organized and existing under the laws of the Republic of the Philippines, operating as a common carrier transporting passengers and cargo through aircraft.

On June 15, 1998, PAL retrenched 5,000 of its employees, including more than 1,400 of its cabin crew personnel, to take effect on July 15, 1998. PAL adopted the retrenchment scheme allegedly to cut costs and mitigate huge financial losses as a result of a downturn in the airline industry brought about by the Asian financial crisis. During said period, PAL claims to have incurred P90 billion in liabilities, while its assets stood at P85 billion.

In implementing the retrenchment scheme, PAL adopted its so-called Plan 14 whereby PALs fleet of aircraft would be reduced from 54 to 14, thus requiring the services of only 654 cabin crew personnel. PAL admits that the retrenchment is wholly premised upon such reduction in fleet, and to the strike staged by PAL pilots since this action also translated into a reduction of flights.

PAL claims that the scheme resulted in savings x x x amounting to approximately P24 million per month savings that would greatly alleviate PALs financial crisis.

On June 22, 1998, FASAP filed a Complaint against PAL and Patria T. Chiong (Chiong) for unfair labor practice, illegal retrenchment with claims for reinstatement and payment of salaries, allowances and backwages of affected FASAP members, actual, moral and exemplary damages with a prayer to enjoin the retrenchment program then being implemented.

Meanwhile, months after the June 15, 1998 mass dismissal of its cabin crew personnel, PAL began recalling to service those it had previously retrenched. Thus, in November 1998 and up to March 1999 several of those retrenched were called back to service. To date, PAL claims to have recalled 820 of the retrenched cabin crew personnel. FASAP, however, claims that only 80 were recalled as of January 2001.

Issue:

Whether PALs retrenchment scheme was justified. Ruling:

No. Under the Labor Code, retrenchment or reduction of employees is authorized as follows:

ART. 283. Closure of establishment and reduction of personnel. - The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-

Atty. Jefferson M. Marquez

saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

The law recognizes the right of every business entity to reduce its work force if the same is made necessary by compelling economic factors which would endanger its existence or stability. Where appropriate and where conditions are in accord with law and jurisprudence, the Court has authorized valid reductions in the work force to forestall business losses, the hemorrhaging of capital, or even to recognize an obvious reduction in the volume of business which has rendered certain employees redundant.

Nevertheless, while it is true that the exercise of this right is a prerogative of management, there must be faithful compliance with substantive and procedural requirements of the law and jurisprudence, for retrenchment strikes at the very heart of the workers employment, the lifeblood upon which he and his family owe their survival. Retrenchment is only a measure of last resort, when other less drastic means have been tried and found to be inadequate.

The burden clearly falls upon the employer to prove economic or business losses with sufficient supporting evidence. Its failure to prove these reverses or losses necessarily means that the employees dismissal was not justified. Any claim of actual or potential business losses must satisfy certain established standards, all of which must concur, before any reduction of personnel becomes legal.

These are:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer; (2) That the employer served written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees right to security of tenure; and,

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

In view of the facts and the issues raised, the resolution of the instant petition hinges on a determination of the existence of the first, fourth and the fifth elements set forth above, as well as compliance therewith by PAL, taking to mind that the burden of proof in retrenchment cases lies with the employer in showing valid cause for dismissal: that legitimate business reasons exist to justify retrenchment.

FIRST ELEMENT:

The employers prerogative to layoff employees is subject to certain limitations.

The law speaks of serious business losses or financial reverses. Sliding incomes or decreasing gross revenues are not necessarily losses, much less serious business losses within the meaning of the law. The fact that an employer may have sustained a net loss, such loss, per se, absent any other evidence on its impact on the business, nor on expected losses that would have been incurred had operations been continued, may not amount to serious business losses mentioned in the law. The employer must show that its losses increased through a period of time and that the condition of the company will not likely improve in the near future, or that it expected no abatement of its losses in the coming years. Put simply, not every loss incurred or expected to be incurred by a company will justify retrenchment.

The employer must also exhaust all other means to avoid further losses without retrenching its employees. Retrenchment is a means of last resort; it is justified only when all other less drastic means have been tried and found insufficient. Even assuming that the employer has actually incurred losses by reason of the Asian economic crisis, the retrenchment is not completely justified if there is no showing that the retrenchment was the last recourse resorted to. Where the only less drastic measure that the employer undertook was the rotation work scheme, or the three- day-work-per-employee-per-week schedule, and it did not endeavor at other measures, such as cost reduction, lesser investment on raw materials, adjustment of the work routine to avoid scheduled power failure, reduction of the bonuses and salaries of both management and rank-

and-file, improvement of manufacturing efficiency, and trimming of marketing and advertising costs, the claim that retrenchment was done in good faith to avoid losses is belied.

Alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees; scheming employers might be merely feigning business losses or reverses in order to ease out employees.

In establishing a unilateral claim of actual or potential losses, financial statements audited by independent external auditors constitute the normal method of proof of profit and loss performance of a company. A Statement of Profit and Loss submitted to prove alleged losses, without the accompanying signature of a certified public accountant or audited by an independent auditor, is nothing but a self-serving document which ought to be treated as a mere scrap of paper devoid of any probative value.

In the instant case, PAL failed to substantiate its claim of actual and imminent substantial losses which would justify the retrenchment of more than 1,400 of its cabin crew personnel. Although the Philippine economy was gravely affected by the Asian financial crisis, however, it cannot be assumed that it has likewise brought PAL to the brink of bankruptcy. Likewise, the fact that PAL underwent corporate rehabilitation does not automatically justify the retrenchment of its cabin crew personnel.

To prove that PAL was financially distressed, it could have submitted its audited financial statements but it failed to present the same with the Labor Arbiter. Instead, it narrated a litany of woes without offering any evidence to show that they translated into specific and substantial losses that would necessitate retrenchment.

Interestingly, PAL submitted its audited financial statements only when the case was the subject of certiorari proceedings in the Court of Appeals by attaching in its Comment a copy of its consolidated audited financial statements for the years 2002, 2003 and 2004. However, these are not the financial statements that would have shown PALs alleged precarious position at the time it implemented the massive retrenchment scheme in 1998. PAL should have submitted its financial statements for the years 1997 up to 1999; and not for the years 2002 up to 2004 because these financial statements cover a period markedly distant to the years in question, which make them irrelevant and unacceptable.

FOURTH ELEMENT:

Concededly, retrenchment to prevent losses is an authorized cause for terminating employment and the decision whether to resort to such move or not is a management prerogative. However, the right of an employer to dismiss an employee differs from and should not be confused with the manner in which such right is exercised. It must not be oppressive and abusive since it affects one's person and property.

On the requirement that the prerogative to retrench must be exercised in good faith, we have ruled that the hiring of new employees and subsequent rehiring of retrenched employees constitute bad faith; that the failure of the employer to resort to other less drastic measures than retrenchment seriously belies its claim that retrenchment was done in good faith to avoid losses; and that the demonstrated arbitrariness in the selection of which of its employees to retrench is further proof of the illegality of the employers retrenchment program, not to mention its bad faith.

When PAL implemented Plan 22, instead of Plan 14, which was what it had originally made known to its employees, it could not be said that it acted in a manner compatible with good faith. It offered no satisfactory explanation why it abandoned Plan 14; instead, it justified its actions of subsequently recalling to duty retrenched employees by making it appear that it was a show of good faith; that it was due to its good corporate nature that the decision to consider recalling employees was made. The truth, however, is that it was unfair for PAL to have made such a move; it was capricious and arbitrary, considering that several thousand employees who had long been working for PAL had lost their jobs, only to be recalled but assigned to lower positions (i.e., demoted), and, worse, some as new hires, without due regard for their long years of service with the airline.

The irregularity of PALs implementation of Plan 14 becomes more apparent when it rehired 140 probationary cabin attendants whose services it had previously terminated, and yet proceeded to terminate the services of its permanent cabin crew personnel.

In sum, we find that PAL had implemented its retrenchment program in an arbitrary manner and with evident bad faith, which prejudiced the tenurial rights of the cabin crew personnel.

FIFTH ELEMENT:

In selecting employees to be dismissed, fair and reasonable criteria must be used, such as but not limited to: (a) less preferred status (e.g., temporary employee), (b) efficiency and (c) seniority.

Atty. Jefferson M. Marquez

In the implementation of its retrenchment scheme, PAL evaluated the cabin crew personnels performance during the year preceding the retrenchment (1997), based on the following set of criteria or rating variables found in the Performance Evaluation Form of the cabin crew personnels Grooming and Appearance Handbook:

A. INFLIGHT PROFICIENCY EVALUATION 30%