Case Digest: Waterfront v. Jimenez, et al.

G.R. No. 174214 : June 13, 2012




Herein respondents were hired for Club Waterfront, a division under petitioner Waterfront Cebu City Hotel which catered to foreign high stakes gamblers for different positions.

On 12 May 2003, respondents, along with 41 other employees, received identical letters of termination from petitioner Director of Human Resources informing them of the temporary suspension of business of the Club.

The following day, petitioner served the notice of suspension of business with the DOLE). The dismissed employees were offered separation pay equivalent to half-month pay for every year of service. The Club closure took effect on 15 June 2003.

On 26 June 2003, respondents filed a complaint before the Labor Arbiter for illegal dismissal, illegal suspension, and non-payment of salaries and other monetary benefits. They likewise prayed for damages and attorney fees.

Respondents maintained that they are employees of petitioner assigned to the Club, hence they should have been allowed to work in other departments of the hotel.

Oppositely, petitioner averred that since April 2002, the Club has been incurring losses that it had to temporarily cease its operations effective 15 June 2003. To support the allegations of losses, petitioner presented financial statements of Waterfront Promotion, Ltd. Petitioner argued that pursuant to Article 286 of the Labor Code, the temporary suspension of business operations does not terminate employment. Thus, respondents have no cause of action against them.

On 12 December 2003, the labor arbiter ruled in favor of petitioner and upheld the closure of the Club business operations as a management prerogative. The petitioner was, however, directed to comply with Article 283 of the Labor Code and to pay complainants their separation pay equivalent to one-half month pay for every year of service, a fraction of at least 6 months being considered as one year.

Respondents appealed to the NLRC which issued a Decision affirming the ruling of the Labor Arbiter. After the denial of respondentsmotion for reconsideration, they elevated the case to the Court of Appeals.

Respondents argued that the NLRC should have considered the financial statements of the petitioner Hotel and not merely of the Club, which is only a division of the Hotel. According to respondents, the permanent closure of the Club resulted in retrenchment but petitioner failed to prove that it complied with the standards for retrenchment. On 5 July 2006, the Court of Appeals rendered a Decision reversing the findings and conclusions of the NLRC.

The appellate court found that petitioner Hotel is the actual employer of respondents, thus the evidence of losses and closure of the Club is immaterial and irrelevant.

Petitioner filed a motion for reconsideration but it was denied in a Resolution dated 15 August 2006. Hence, this petition for review on certiorari.

ISSUE: Whether or not the evidence of losses and closure of Club Waterfront is immaterial and irrelevant to the termination of petitioners?

HELD: The ruling of the Court of Appeals is reversed and set aside.

At the outset, it should be stated that the respondents cannot be accommodated in other departments of the Hotel. The duties and functions they perform are peculiar to the positions they hold in the Club. It is likewise undisputed that the Club remained closed and there is no other department in the Hotel similar to the Club and which catered to foreign high stakes gamblers. Verily, reinstatement cannot be and could not have been an option for petitioner Hotel.

For the purpose of proving financial losses, petitioner presented the financial statements of Waterfront Promotion, Ltd. which petitioner describes as the company which promotes, markets and finances the Club.

A review of the corporate structure of the Club as contained in the financial statements submitted by petitioner reveals that it is actually a wholly-owned subsidiary of Waterfront Promotion, Ltd. Strictly speaking, the Club is not related to petitioner except to say that they are two different subsidiaries of one parent corporation, i.e., Waterfront Philippines. Petitioner, then, could have right at the beginning avoided the conflict with respondents by setting itself apart from them. Petitioner could have invoked the separateness from the Hotel of the Club which employed respondents. Petitioner did not do so. Instead, and at the outset, it formally presented itself as the respondentsemployer when, through its Director of Human Resources, it informed respondents about the temporary suspension of the business of the Club and forthwith served the notices of suspension of business on DOLE.

The consolidated financial statements that were prepared in the name of Waterfront Promotion refer to the casino operations of the Club. A consolidated financial statement is usually prepared for a parent company and its subsidiaries, the purpose of which is to provide an overview of the financial condition of the group of companies as a single entity. The Club, being a wholly-owned subsidiary of Waterfront Promotion, Ltd. operates under the management, supervision and control of Waterfront Promotion, Ltd. The relationship between these two companies is so intertwined that the Club is practically considered a department or division of Waterfront Promotion, Ltd.

A review of the consolidated financial statement proves petitioner assertion that the losses there reflected refer to the losses of the Club. The consolidated financial statement and the corporate relationships it indicates, cannot, however, be relied upon by petitioner to avoid this particular labor dispute because, as already stated, petitioner itself has been claiming from the very beginning that the Club is only a division/department of the hotel.

Verily, retrenchment and not closure was effected to warrant the valid dismissal of respondents. Petitioner has not totally ceased its operations. It merely closed down a department.

Retrenchment is the termination of employment initiated by the employer through no fault of and without prejudice to the employees. It is resorted to 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.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.

In case of retrenchment, proof of financial losses becomes the determining factor in proving its legitimacy. In establishing a unilateral claim of actual or potential losses, financial statements audited by independent external auditors constitute the normal method of proof of profit and loss performance of a company. The condition of business losses justifying retrenchment is normally shown by audited financial documents like yearly balance sheets and profit and loss statements as well as annual income tax returns.

Retrenchment is subject to faithful compliance with the substantative and procedural requirements laid down by law and jurisprudence. For a valid retrenchment, the following elements must be present:
(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least ½ month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees right to security of tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.
All these elements were successfully proven by petitioner. First, the huge losses suffered by the Club for the past two years had forced petitioner to close it down to avert further losses which would eventually affect the operations of petitioner. Second, all 45 employees working under the Club were served with notice of termination. The corresponding notice was likewise served to the DOLE one month prior to retrenchment. Third, the employees were offered separation pay, most of whom have accepted and opted not to join in this complaint. Fourth, cessation of or withdrawal from business operations was bona fide in character and not impelled by a motive to defeat or circumvent the tenurial rights of employees. Neither is there a showing that petitioner carried out the closure of the business in bad faith. No labor dispute existed between management and the employees when the latter were terminated.