Retrenched?

To justify retrenchment, the employer must prove either actual or potential serious business losses. What is the meaning of serious business losses? This is answered in this case of Angie and Millie.

Angie and Millie were hired by a telecommunications company (PTT) as account executives stationed in Baguio City in November 1991 and August 1995 respectively. When PTT decided to embark on an expansion project in Rizal and Laguna, its Vice President invited Angie and Millie to consider a two-three month assignment in the aforesaid area. Since the transfer would entail additional expense on their part and there were no clear guidelines and procedures in its implementation, they refused.

Eventually the expansion project itself failed to materialize for lack of capital. In fact PTT realized that it needed to undertake measures against losses to prevent the company from going bankrupt, particularly by reducing its workforce from 2,500 to 900 employees. Based on its audited financial statements, it suffered a net loss of P40,780,017 in 1995, P85,423,641 in 1996, then P557,892,627 in 1998 after posting a net income of P1,491,532 the year before. So PTT implemented a Voluntary Staff Reduction Program (VSRP) which was availed by 478 employees only. Despite extension of the VSRP, not enough employees still availed of the program so PTT decided to implement a Temporary Staff Reduction Program (TSRP) lasting for not more than 5 1/2 months to commence from September 1, 1998 to February 15, 1999. Under TSRP, affected employees would receive financial assistance equivalent to 15 days salary and a loan equivalent to 2 months salary chargeable to their accounts.

Angie and Millie were among those informed as affected by and included in the TSRP. Angie received her notice on August 26, 1998 while Millie was informed on August 21, 1998. So when they reported for work on September 2, 1998 they were informed that their positions no longer existed; in its stead the positions of Service Account Representative (SAR) and Service Account Specialist (SAS) were created and had already been filled up. So on the same day, Angie and Millie filed a complaint for illegal dismissal with the Regional NLRC. In the interim, on October 26, 1998, the PTT Vice President sent Angie and Millie a letter extending to them the same separation package that the company extended to the 80 striking employees provided they submit their decision to avail of the same on or before November 15, 1998. PTT also informed them that their separation from the company is effective August 31, 1998.

The Labor Arbiter found that Millie and Angie were constructively dismissed. So it ordered their reinstatement, payment of their full back wages plus exemplary damages of P20,000 and P6,000 indemnity for failure to observe due process and 10 percent of the amount as attorney’s fees. The NLRC affirmed this ruling but deleted the award of damages and attorney’s fees. On further appeal to the Court of Appeals (CA) the latter affirmed the decision of the NLRC and declared that there was no valid ground for retrenchment considering that when Angie and Millie returned, their positions were already filled up and that PTT did not inform its employees and the DOLE of the scheduled retrenchment at least one month before its implementation. Was the CA correct?

The CA is partially correct only. There was valid ground for retrenchment due to serious business losses. Any claim of actual or potential business losses must satisfy the following established standards to guard against abuse: (1) the losses incurred are substantial; (2) the losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and is likely effective in preventing the expected losses; and (4) the alleged losses, if already incurred, or the expected imminent loss sought to be forestalled are proven by sufficient and convincing evidence. For this purpose, financial statements audited by independent external auditors constitute the normal method of proof of the profit and loss performance of a company.

In this case, the audited financial statements of PTT for 1996 to 1998 show that it incurred a substantial loss of about P558 million for the fiscal year ending June 1998, resulting in total deficit of about P574 million as of the same date. These clearly indicate that PTT sufficiently complied with its burden of proving that it incurred substantial losses as to warrant the exercise of the extreme measure of retrenchment to prevent the company from totally going under.

And with respect to Angie and Millie, the evidence shows that they were not only temporarily laid off. The October 26 letter of the VP clearly stated that they were to be separated from the company effective August 31, 1998. So their retrenchment was permanent. But whether temporary or permanent, the one month notice rule is mandatory. Here Angie and Millie were merely given one or two weeks notice. While there is failure to comply with the one month notice prior to retrenchment, it does not mean that the termination is illegal; it merely renders the same defective entitling the dismissed employees to nominal damages of P30,000. And pursuant to Article 283, the retrenchment having been effected due to serious business losses, Angie and Millie are entitled to one month pay or to at least one half month pay for every year of service whichever is higher, a fraction of at least six months considered as one whole year (PT&T vs. NLRC, G.R. 147002. April 15, 2005. 456 SCRA 264).

There seems to be a defect in this ruling. The SC considered retrenchment as the ground for the valid dismissal of Angie and Millie when it would show that they were dismissed because their positions were abolished.