CASE DIGEST: Arabit v. Jardine Pacific

G.R. No. 181719 : April 21, 2014




Petitioners were former regular employees of respondent Jardine Pacific Finance, Inc. (formerly MB Finance) (Jardine). The petitioners were also officers and members of MB Finance Employees Association-FFW Chapter (the Union), a legitimate labor union and the sole exclusive bargaining agent of the employees of Jardine. The table below shows the petitioners previously occupied positions, as well as their total length of service with Jardine before their dismissal from employment.

On the claim of financial losses, Jardine decided to reorganize and implement a redundancy program among its employees. The petitioners were among those affected by the redundancy program. Jardine thereafter hired contractual employees to undertake the functions these employees used to perform.

The Union filed a notice of strike with the National Conciliation and Mediation Board (NCMB), questioning the termination of employment of the petitioners who were also union officers. The Union alleged unfair labor practice on the part of Jardine, as well as discrimination in the dismissal of its officers and members.

Negotiations ensued between the Union and Jardine under the auspices of the NCMB, and both parties eventually reached an amicable settlement. In the settlement, the petitioners accepted their redundancy pay without prejudice to their right to question the legality of their dismissal with the NLRC. Jardine paid the petitioners a separation package composed of their severance pay, plus their grossed up transportation allowance.

On June 1, 1999, the petitioners and the Union filed a complaint against Jardine with the NLRC for illegal dismissal and unfair labor practice.

Jardine argued in its defense that the company had been incurring substantial business losses from 1996 to 1998. According to Jardine, its audited financial statements reflect that for 1996, it suffered a net loss of P5,538,960.00; for 1997, a net loss in the amount of P57,274,018.00; and a net loss of P95,529,527.00 for 1998.

Because of these serious business losses, Jardine asserted that it had to lay-off some of its employees and reorganize its ranks to eliminate positions that were in excess of what its business required.

Jardine, however, admitted that it hired contractual employees to replace petitioners in their previous posts. Jardine reasoned out that no bad faith took place since the hiring of contractual employees was a valid exercise of its management prerogative.15 Jardine argued that the distinction between redundancy and retrenchment is not material; an employer resorts to retrenchment or redundancy for the same reason, namely the economics of business. Since Jardine successfully established that it incurred serious business losses, then termination of employment of the petitioners was valid for all intents and purposes.

The LA ruled in the petitioners favor. The CA reversed the LAs and the NLRCs rulings, and granted Jardines petition for certiorari. The CA found that Jardines act of hiring contractual employees in replacement of the petitioners does not run counter to the argument that their positions are already superfluous.

ISSUE: Whether the petitioners maintain that the CA gravely abused its discretion and that its ruling is not in conformity with the law and jurisprudence.

HELD: We resolve to GRANT the petition.


We emphasize at the outset that the current petition was brought under Rule 45 of the Rules of Court. As a rule, only questions of law may be raised on appeal under this remedy. This is in contrast with a petition for certiorari brought under Rule 65 where the review centers on the jurisdictional errors the lower court or tribunal may have committed.

We thus limit our review to errors of law which the CA might have committed. A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them.

In ruling for legal correctness, we have to view the CA decision in the same context that the petition for certiorari it ruled upon was presented to it; we have to examine the CA decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion in the NLRC decision before it, not on the basis of whether the NLRC decision on the merits of the case was correct. In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the NLRC decision challenged before it. This is the approach that should be basic in a Rule 45 review of a CA ruling in a labor case.


We cannot accept Jardines shallow understanding of the concepts of redundancy and retrenchment in determining the validity of the severance of an employer-employee relationship. The fact that they are found together in just one provision does not necessarily give rise to the conclusion that the difference between them is immaterial. This Court has already ruled before that retrenchment and redundancy are two different concepts; they are not synonymous; thus, they should not be used interchangeably. The clear distinction between these two concepts was discussed in Andrada, et al., v. NLRC, citing the case of Sebuguero v. NLRC, where this Court clarified:

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. A position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise.

Retrenchment, on the other hand, is used interchangeably with the term lay-off. It is the termination of employment initiated by the employer through no fault of the employees and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. Simply put, it is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court.

These rulings appropriately clarify that redundancy does not need to be always triggered by a decline in the business. Primarily, employers resort to redundancy when the functions of an employee have already become superfluous or in excess of what the business requires. Thus, even if a business is doing well, an employer can still validly dismiss an employee from the service due to redundancy if that employees position has already become in excess of what the employers enterprise requires.

From this perspective, it is illogical for Jardine to terminate the petitioners employment and replace them with contractual employees. The replacement effectively belies Jardines claim that the petitioners positions were abolished due to superfluity. Redundancy could have been justified if the functions of the petitioners were transferred to other existing employees of the company.

To dismiss the petitioners and hire new contractual employees as replacements necessarily give rise to the sound conclusion that the petitioners services have not really become in excess of what Jardines business requires. To replace the petitioners who were all regular employees with contractual ones would amount to a violation of their right to security of tenure. For this, we affirm the NLRCs ruling, citing the LAs decision, when it ruled:

In the case at bench, respondents did not dispute that after laying-off complainants herein, they engaged the services of an agency to perform the tasks use to be done by complainants. This is in direct contradiction to the concept of redundancy which precisely requires the trimming down of the workforce because a task is being carried out by just too many people. The subsequent contracting out to an agency the functions or duties that used to be the domain of individual complainants herein is a circumvention of their constitutional rights to security of tenure, and therefore illegal.


We recognize that management has the prerogative to characterize an employees services as no longer necessary or sustainable, and therefore properly terminable.

The CA also correctly cited De Ocampo, et al., v. NLRC when it discussed that Jardines decision to hire contractual employees as replacements is a management prerogative which the company has the right to undertake to implement a more economic and efficient operation of its business.

In De Ocampo, this Court held that, in the absence of proof that the management abused its discretion or acted in a malicious or arbitrary manner in replacing dismissed employees with contractual ones, judicial intervention should not be made in the companys exercise of its management prerogative.

The employers exercise of its management prerogative, however, is not an unbridled right that cannot be subjected to this Courts scrutiny. The exercise of management prerogative is subject to the caveat that it should not performed in violation of any law and that it is not tainted by any arbitrary or malicious motive on the part of the employer.

This Court, in several cases, sufficiently explained that the employer must follow certain guidelines to dismiss employees due to redundancy. These guidelines aim to ensure that the dismissal is not implemented arbitrarily and is not tainted with bad faith against the dismissed employees.

In Golden Thread Knitting Industries, Inc. v. NLRC, this Court laid down the principle that the employer must use fair and reasonable criteria in the selection of employees who will be dismissed from employment due to redundancy. Such fair and reasonable criteria may include the following, but are not limited to: (a) less preferred status (e.g. temporary employee); (b) efficiency; and (c) seniority. The presence of these criteria used by the employer shows good faith on its part and is evidence that the implementation of redundancy was painstakingly done by the employer in order to properly justify the termination from the service of its employees.

For the implementation of a redundancy program to be valid, the employer must comply with the following requisites: (1) written notice served on both the employees and the Department of Labor and Employment at least one month prior to the intended date of retrenchment; (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good faith in abolishing the redundant positions; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.

Admittedly, Jardine complied with guidelines 1 and 2 of the guidelines in Asian Alcohol. Jardine informed the Department of Labor and Employment of the petitioners separation from the service due to redundancy on April 30, 1999, one month before their terminations effectivity. Also, the petitioners were given their individual separation packages, composed of their severance pay, plus their grossed up transportation allowance.

Guidelines 3 and 4 of Asian Alcohol, however, are different matters. These last two guidelines are interrelated to ensure good faith in abolishing redundant positions; the employer must clearly show that it used fair and reasonable criteria in ascertaining what positions are to be declared redundant.