Case Digest: Talam v. NLRC, et al. G.R. No. 175040 : April 6, 2010




The respondent, The Software Factory, Inc. (TSFI), is a domestic corporation engaged in providing information technology and computer consultancy to the public. It holds office in Makati City. In April 2001, it employed Talam as a full-time programmer.

In the latter part of 2001 and in 2002, TSFI suffered financial reverses. Its external financial auditor advised that it cut on its payroll expenses which accounted for 41% of its total operating costs.TSFI heeded the advice and decided to retrench some of its employees, using as basis its employees' service income and contribution margins to the company. TSFI found that Talam was one of two employees with the least or with no income contribution for the year 2002. Consequently, respondents Teresa Grapilon (Grapilon), TSFI's Office Manager, and Wolfgang Hermle (Hermle), Chief Executive Officer, verbally informed Talam that his services with the company would be terminated thirty (30) days after September 27, 2002. Thereafter, TSFI notified Talam in writing of the termination of his employment. The notice was dated October 1, 2002, but received by Talam on October 4, 2002. On November 6, 2002, or after a month, Talam signed a Release and Quitclaim in consideration and receipt ofP89,954.00 in compensation and other benefits.

On November 29, 2002, Talam questioned the legality of his separation from the service through a complaint for illegal dismissal and illegal deduction, with claims for service incentive leave pay, damages and attorney's fees against TSFI, Grapilon and Hermle, before the National Labor Relations Commission (NLRC) in Cebu City.

On October 28, 2003, Executive Labor Arbiter Reynoso A. Belarmino rendered a decision declaring Talam's dismissal illegal and directing TSFI to pay Talam separation benefits, backwages and 13th month pay in the aggregate amount ofP260,560.00.

TSFI appealed to the NLRC. In a Decision dated February 21, 2005,the NLRC Fourth Division set aside the labor arbiter's ruling and dismissed Talam's complaint without prejudice, for improper venue. It ruled that Talam should have filed the complaint with the NLRC-Regional Arbitration Branch in the National Capital Region which has jurisdiction over the workplace in Makati City. Talam sought a reconsideration which the NLRC granted in a resolution promulgated on May 25, 2005.

TSFI moved for reconsideration of the NLRC resolution which was partially granted in another resolution dated September 27, 2005.

Talam moved for reconsideration, but the NLRC denied the motion on January 31, 2006. Talam thereafter sought relief from the CA through a petition forcertiorari under Rule 65 of the Rules of Court, In particular, Talam questioned the deletion of the award to him of backwages and 13th month pay.

The CA denied the petition for lack of merit. It found Talam's separation from the service by reason of retrenchment to be valid.

Talam moved for reconsideration of the decision, but the CA denied the motion in a resolution promulgated on September 29, 2006.Hence, the present recourse to the Court.


Whether Talam the retrenchment is valid and entitled to benefits.

HELD: The decision of the Court of Appeals is sustained.


The CA committed no reversible error in affirming the NLRC ruling that Talam was validly dismissed on the ground of retrenchment.

First. The decision to retrench had a basis; it was not simulated nor resorted to for the purpose of getting rid of employees. The decision was upon the recommendation of the companys external auditor Leah A. Villanueva, as contained in her letter to the TSFI Board of Directors in October 2002.The letter reads:

Second. The cost-cutting measure recommended involved reduction of TSFIs payroll expense account which, as the auditor found, makes up 41% of the company's total operating expenses. Talam insinuates that the share in the company's operating costs of personnel expenses is misleading, contending that the bulk of the expense goes into management fees. While this may be so, it cannot be denied that the management group is still part of the personnel component of the company, and absent any showing of bad faith, the choice of who should be retrenched must be conceded to the company for as long as there exists a basis for it.

Talam disputes the unfavorable assessment of his performance as a consultant, arguing that among nineteen (19) consultants of the company (not seventeen [17], as listed by TSFI), there were four (4) employees who had lower contribution margins; he had no contribution income for 2002 because he was assigned to do office work and was not being given projects.

Third. Talam was dismissed due to a cause authorized by law retrenchment to prevent losses. At the time of Talams dismissal, TSFIs financial condition, as found by the external auditor, showed that it was not just expecting losses, it already suffered a net income loss of P2,474,418.00 and retained earnings deficit ofP7,424,250.00 for the period ending December 31, 2002.

Fourth. TSFI resorted to other measures to abate its losses. It claimed that during the crises period, it used as an office a small-room (a mere cubicle) with only a two-person support staff in the persons of Grapilon and Hermle; it reduced the salaries of its employees by as much as 30%. This submission by the company is substantiated by the schedule of Operating Expenses for the year ended December 31, 2002 and September 30, 2002.A quick glance at the schedule readily shows a reduction of TSFIs operating expenses across the board. The schedule indicates a substantial decrease in the operating expenses, from P5,733,735.00 in September 2002 toP1,698,552.36 as of the end of December 2002.

Given the release and quitclaim, there is no reason how TSFI can be made to answer for failure to afford Talam procedural due process. The release and quitclaim, erased whatever infirmities there might have been in the notice of termination as Talam had already voluntarily accepted his dismissal through the release and quitclaim. With this acceptance, the written notice became academic; the notice, after all, is merely a protective measure put in place by law and serves no useful purpose after protection has been assured. Thus finding no basis for the conclusion that TSFI violated procedural due process and should pay nominal damages.


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