Requirements for Retrenchment of Employee and the Award of Nominal Damages

A particular department under the SMC group of companies was closed allegedly due to serious business reverses.

The Supreme Court (SC) concluded that this constitutes retrenchment by, and not closure of, the enterprise or the company itself as SMC has not totally ceased operations but is still very much an on-going and highly viable business concern.

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is, however, subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence.

For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence.

In the discharge of these requirements, it is the employer who has the onus, being in the nature of an

affirmative defense.

Normally, the condition of business losses is shown by audited financial documents like yearly balance sheets, profit and loss statements and annual income tax returns. The financial statements must be prepared and signed by independent auditors failing which they can be assailed as self-serving documents.

In the case of SMC, company losses were duly established by financial documents audited by Joaquin Cunanan & Co. showing that the aquaculture operations of SMC’s Agribusiness Division accumulated losses amounting to Php145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental, PhP11,393,071.00 in 1993 and PhP80,325,608.00 in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment, in order to give employees some time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of the alleged cause of termination.

Affected employees, however, were merely verbally informed on September 10, 1995 by SMC Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they were no longer to report for work as SMC would be closing its operations.

Where the dismissal is based on an authorized cause under Article 283 [now Art. 301] of the Labor Code but the employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal process was initiated by the employer’s exercise of his management prerogative, as opposed to a dismissal based on a just cause under Article 282 [Art. 297] with the same procedural infirmity where the sanction to be imposed upon the employer should be tempered as the dismissal process was, in effect, initiated by an act imputable to the employee.

In light of the factual circumstances of the case at bar, the SC awarded PhP50,000.00 to each complainant as nominal damages.

Learn how to Validly Terminate Employee in the Philippines with this Tutorial Video of Atty. Elvin

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