Case Digest: SHS Perforated Materials v. Diaz

G.R. No. 185814: October 13, 2010




Petitioner SHS Perforated Materials, Inc.(SHS)is a start-up corporation organized and existing under the laws of the Republic of thePhilippinesand registered with the Philippine Economic Zone Authority. Petitioner Winfried Hartmannshenn(Hartmannshenn), a German national, is its president, in which capacity he determines the administration and direction of the day-to-day business affairs of SHS. Petitioner Hinrich Johann Schumacher(Schumacher),also a German national, is the treasurer and one of the board directors. As such, he is authorized to pay all bills, payrolls, and other just debts of SHS of whatever nature upon maturity. Schumacher is also the Executive Vice-President of the European Chamber of Commerce of thePhilippines(ECCP)which is a separate entity fromSHS.Both entities have an arrangement where ECCP handles the payroll requirements of SHS to simplify business operations and minimize operational expenses. Thus, the wages of SHS employees are paid out by ECCP, through its Accounting Services Department headed by Juliet Taguiang(Taguiang).

Manuel F. Diaz (respondent) was hired by petitioner SHS as Manager for Business Development on probationary status from July 18, 2005toJanuary 18, 2006, with a monthly salary ofP100,000.00. Respondents duties, responsibilities, and work hours were described in the Contract of Probationary Employment.

Respondent was also instructed by Hartmannshenn to report to the SHS office and plant at least two (2) days every work week to observe technical processes involved in the manufacturing of perforated materials, and to learn about the products of the company, which respondent was hired to market and sell.

During respondents employment, Hartmannshenn was often abroad and, because of business exigencies, his instructions to respondent were either sent by electronic mail or relayed through telephone or mobile phone. When he would be in thePhilippines, he and the respondent held meetings. As to respondents work, there was no close supervision by him.

During meetings with the respondent, Hartmannshenn expressed his dissatisfaction over respondents poor performance.Respondent allegedly failed to make any concrete business proposal or implement any specific measure to improve the productivity of the SHS office and plant or deliver sales except for a meagreP2,500.00 for a sample product. In numerous electronic mail messages, respondent acknowledged his poor performance and offered to resign from the company.

Respondent, however, denied sending such messages but admitted that he had reported to the SHS office and plant only eight (8) times from July 18, 2005 to November 30, 2005.

OnNovember 16, 2005, in preparation for his trip to thePhilippines, Hartmannshenn tried to call respondent on his mobile phone, but the latter failed to answer. OnNovember 18, 2005, Hartmannshenn arrived in thePhilippinesfromGermany, and on November 22 and 24, 2005, notified respondent of his arrival through electronic mail messages and advised him to get in touch with him.Respondent claimed that he never received the messages.

OnNovember 29, 2005, Hartmannshenn instructed Taguiang not to release respondents salary. Later that afternoon, respondent called and inquired about his salary. Taguiang informed him that it was being withheld and that he had to immediately communicate with Hartmannshenn. Again, respondent denied having received such directive.

The next day, onNovember 30, 2005, respondent served on SHS a demand letter and a resignation letter.

To settle the issue amicably, petitioners counsel advised respondents counsel by telephone that a check had been prepared in the amount ofP50,000.00, and was ready for pick-up onDecember 5, 2005. On the same date, a copy of the formal reply letter relating to the prepared payment was sent to the respondents counsel by facsimile transmission. Despite being informed of this, respondent never picked up the check.

Respondent countered that his counsel received petitioners formal reply letter only onDecember 20, 2005, stating that his salary would be released subsequent to the turn-over of all materials owned by the company in his possession. Respondent claimed that the only thing in his possession was a sample panels folder which he had already returned and which was duly received by Taguiang onNovember 30, 2005.

OnDecember 9, 2005,respondent filed a Complaint against the petitioners for illegal dismissal; non-payment of salaries/wages and 13thmonth pay with prayer for reinstatement and full backwages; exemplary damages, and attorneys fees, costs of suit, and legal interest.

OnJune 15, 2006, the LA rendered his decision declaring complainant as having been illegally dismissed and further ordering his immediate reinstatement without loss of seniority rights and benefits. It is also ordered that complainant be deemed as a regular employee.

On appeal, the NLRCreversedthe decision of the LA in itsDecember 29, 2006Resolution.

OnJanuary 25, 2007, respondent filed a motion for reconsideration but the NLRC subsequently denied it for lack of merit in itsMay 23, 2007Resolution.

The CAreversedthe NLRC resolutions in itsDecember 23, 2008Decision.

Aggrieved, the petitioners come to this Court praying for the reversal and setting aside of the subject CA decision.
Whether or not respondent was constructively dismissed by petitioners, which determination is, in turn, hinged on finding out: 
[1] Whether or not the temporary withholding of respondents salary/wages by petitioners was a valid exercise of management prerogative; and
[2] Whether or not respondent voluntarily resigned.

As a rule, the factual findings of the courts below are conclusive in a petition for review oncertiorariwhere only errors of law should be reviewed. The case, however, is an exception because the factual findings of the CA and the LA are contradictory to that of the NLRC. Thus, a review of the records is necessary to resolve the factual issues involved and render substantial justice to the parties.

Petitioners contend that withholding respondents salary from November 16 to November 30, 2005, was justified because respondent was absent and did not show up for work during that period. He also failed to account for his whereabouts and work accomplishments during said period. When there is an issue as to whether an employee has, in fact, worked and is entitled to his salary, it is within management prerogative to temporarily withhold an employees salary/wages pending determination of whether or not such employee did indeed work.

We disagree with petitioners.


Management prerogative refers to the right of an employer to regulate all aspects of employment, such as the freedom to prescribe work assignments, working methods, processes to be followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and recall of work.Although management prerogative refers to the right to regulate all aspects of employment, it cannot be understood to include the right to temporarily withhold salary/wages without the consent of the employee. To sanction such an interpretation would be contrary to Article 116 of the Labor Code, which provides:

ART. 116. Withholding of wages and kickbacks prohibited. It shall be unlawful for any person, directly or indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the workers consent.

Any withholding of an employees wages by an employer may only be allowed in the form of wage deductions under the circumstances provided in Article 113 of the Labor Code, as set forth below:

ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:
(a)In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance; 
(b)For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and 
(c)In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.
As correctly pointed out by the LA, absent a showing that the withholding of complainants wages falls under the exceptions provided in Article 113, the withholding thereof is thus unlawful.

The Court finds petitioners evidence insufficient to prove that respondent did not work from November 16 toNovember 30, 2005. As can be gleaned from respondents Contract of Probationary Employment and the exchanges of electronic mail messagesbetween Hartmannshenn and respondent, the latters duties as manager for business development entailed cultivating business ties, connections, and clients in order to make sales. Such duties called for meetings with prospective clients outside the office rather than reporting for work on a regular schedule. In other words, the nature of respondents job did not allow close supervision and monitoring by petitioners. Neither was there any prescribed daily monitoring procedure established by petitioners to ensure that respondent was doing his job. Therefore, granting that respondent failed to answer Hartmannshenns mobile calls and to reply to two electronic mail messages and given the fact that he admittedly failed to report to work at the SHS plant twice each week during the subject period, such cannot be taken to signify that he did not work from November 16 to November 30, 2005.

Furthermore, the electronic mail reports sent to Hartmannshenn and the receipt presented by respondent as evidence of his having worked during the subject period were not controverted by petitioners. The eight notarized letters of prospective clients vouching for meetings they had with respondent during the subject period may also be given credence. Although respondent only presented such letters in support of his Motion for Reconsideration filed with the NLRC, they may be considered by this Court in light of Section 10, Rule VII, of the 2005 New Rules of Procedure of the NLRC, which provides in part that the rules of procedure and evidence prevailing in courts of law and equity shall not be controlling and the Commission shall use every and all reasonable means to ascertain the facts in each case speedily and objectively, without regard to technicalities of law or procedure, all in the interest of due process. While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements, they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them. In this case, due process was afforded petitioners as respondent filed with the NLRC a Motion to Set Case for Reception of Additional Evidence as regards the said letters, which petitioners had the opportunity to, and did, oppose.

Although it cannot be determined with certainty whether respondent worked for the entire period from November 16 to November 30, 2005, the consistent rule is that if doubt exists between the evidence presented by the employer and that by the employee, the scales of justice must be tilted in favor of the latter in line with the policy mandated by Articles 2 and 3 of the Labor Code to afford protection to labor and construe doubts in favor of labor.For petitioners failure to satisfy their burden of proof, respondent is presumed to have worked during the period in question and is, accordingly, entitled to his salary. Therefore, the withholding of respondents salary by petitioners is contrary to Article 116 of the Labor Code and, thus, unlawful.


The Court, however, agrees with the LA and the CA that respondent was forced to resign and was, thus, constructively dismissed.InDuldulao v. Court of Appeals,it was written:

There is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an employer becomes so unbearable on the part of the employee that it would foreclose any choice by him except to forego his continued employment.It exists where there is cessation of work because continued employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in pay.

What made it impossible, unreasonable or unlikely for respondent to continue working for SHS was the unlawful withholding of his salary. For said reason, he was forced to resign. It is of no moment that he served his resignation letter onNovember 30, 2005, the last day of the payroll period and a non-working holiday, since his salary was already due him onNovember 29, 2005, being the last working day of said period.In fact, he was then informed that the wages of all the other SHS employees were already released, and only his was being withheld.What is significant is that the respondent prepared and served his resignation letter right after he was informed that his salary was being withheld.It would be absurd to require respondent to tolerate the unlawful withholding of his salary for a longer period before his employment can be considered as so impossible, unreasonable or unlikely as to constitute constructive dismissal.Even granting that the withholding of respondents salary onNovember 30, 2005, would not constitute an unlawful act, the continued refusal to release his salary after the payroll period was clearly unlawful.The petitioners claim that they prepared the check ready for pick-up cannot undo the unlawful withholding.

It is worthy to note that in his resignation letter, respondent cited petitioners illegal and unfair labor practiceas his cause for resignation. As correctly noted by the CA, respondent lost no time in submitting his resignation letter and eventually filing a complaint for illegal dismissal just a few days after his salary was withheld.These circumstances are inconsistent with voluntary resignation and bolster the finding of constructive dismissal.

In this case, the withholding of respondents salary does not fall under any of the circumstances provided under Article 113. Neither was it established with certainty that respondent did not work from November 16 toNovember 30, 2005.Hence, the Court agrees with the LA and the CA that the unlawful withholding of respondents salary amounts to constructive dismissal.

Respondent was constructively dismissed and, therefore, illegally dismissed.Although respondent was a probationary employee, he was still entitled to security of tenure.Section 3 (2) Article 13 of the Constitution guarantees the right of all workers to security of tenure.In using the expression all workers, the Constitution puts no distinction between a probationary and a permanent or regular employee. This means that probationary employees cannot be dismissed except for cause or for failure to qualify as regular employees.

This Court has held that probationary employees who are unjustly dismissed during the probationary period are entitled to reinstatement and payment of full backwages and other benefits and privileges from the time they were dismissed up to their actual reinstatement. Respondent is, thus, entitled to reinstatement without loss of seniority rights and other privileges as well as to full backwages, inclusive of allowances, andother benefits or their monetary equivalent computed from the time his compensation was withheld up to the time of actual reinstatement.Respondent, however, is not entitled to the additional amount for 13thmonth pay, as it is clearly provided in respondents Probationary Contract of Employment that such is deemed included in his salary. Thus:

Employee will be paid a net salary of One Hundred Thousand (Php100,000.00) Pesos per month payable every 15th day and end of the month.

The compensation package defined in this paragraph shall represent all that is due and demandable under this Contract and includes all benefits required by law such as the 13thmonth pay.No other benefits, bonus or allowance shall be due the employee.

Respondents reinstatement, however, is no longer feasible as antagonism has caused a severe strain in their working relationship. Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable.Payment liberates the employee from what could be a highly oppressive work environment, and at the same time releases the employer from the obligation of keeping in its employ a worker it no longer trusts.Therefore, a more equitable disposition would be an award of separation pay equivalent to at least one month pay, in addition to his full backwages, allowances and other benefits.

With respect to the personal liability of Hartmannshenn and Schumacher, this Court has held that corporate directors and officers are only solidarily liable with the corporation for termination of employment of corporate employees if effected with malice or in bad faith.Bad faith does not connote bad judgment or negligence; it imports dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of unknown duty through some motive or interest or ill will; it partakes of the nature of fraud. To sustain such a finding, there should be evidence on record that an officer or director acted maliciously or in bad faith in terminating the employee.

Petitioners withheld respondents salary in the sincere belief that respondent did not work for the period in question and was, therefore, not entitled to it.There was no dishonest purpose or ill will involved as they believed there was a justifiable reason to withhold his salary.Thus, although they unlawfully withheld respondents salary, it cannot be concluded that such was made in bad faith.Accordingly, corporate officers, Hartmannshenn and Schumacher, cannot be held personally liable for the corporate obligations of SHS.