Acosta vs. Matiere SAS and Philippe Gouvary

A dismissal on the ground of redundancy is invalid where the employer fails to establish good faith and to show that it applied fair and reasonable criteria in ascertaining which positions are to be declared redundant and accordingly abolished. Compliance with the notice and separation pay requisites does not cure the failure to substantiate the factual basis for the redundancy or the criteria for selecting the affected employees.

Matiere SAS is a French company engaged in the fabrication, supply, and delivery of unibridges and flyovers, which undertook government infrastructure projects in the Philippines — a contract with the Department of Public Works and Highways for the construction of flyovers and bridges, and another with the Department of Agrarian Reform for the construction of bridges to improve access to agricultural lands. It engaged petitioner Manuel G. Acosta, initially under a Consulting Agreement and later under an Employment Agreement, with respondent Philippe Gouvary, its resident manager, executing the agreements on the company's behalf. The employment relationship and the company's project-based operations in the country form the backdrop against which the termination of Acosta's employment was later justified on the ground of redundancy.

Matiere SAS, a French company engaged in the fabrication, supply, and delivery of unibridges and flyovers, entered into a contract with the Department of Public Works and Highways on October 29, 2008 for the construction of flyovers and bridges, and on March 19, 2009 entered into another contract with the Department of Agrarian Reform for the construction of bridges to provide better access to agricultural lands. On November 1, 2009, Matiere SAS, represented by its resident manager Philippe Gouvary, executed a Consulting Agreement with Manuel G. Acosta, engaging him as its technical consultant for twelve months at a monthly salary of ₱70,000.00. Upon the expiration of that agreement, Matiere SAS hired Acosta as its technical assistant at the same monthly salary under an Employment Agreement dated November 1, 2010, which tasked him to prepare reports regarding Woodfields Consultants, Inc. consultants; to act as intermediary between the CAD operators in Woodfields Consultants, Inc. and the management in the office; to attend coordination meetings with consultants; to evaluate billings; to follow the SIT and prepare reports; to prepare various reports as required by the resident manager; and to conduct site visits. On December 14, 2011, Matiere SAS wrote Acosta two letters — one increasing his salary from ₱70,000.00 to ₱76,000.00 effective January 1, 2012, and another granting him a ₱30,000.00 bonus for his good performance in the second half of 2011.

On June 27, 2013, Matiere SAS sent Acosta a letter with the subject "Ending of the employment agreement," informing him that his employment contract with the company would end on July 31, 2013. The letter attributed the decision to the cessation of the company's delivery operations and the diminution of its activities, stated that no reinstatement could be found at the office, thanked him for his cooperation since November 1, 2009, authorized him not to report to the office starting July 1, 2013, and advised that the amount of his separation pay would be signified as soon as possible. In a June 26, 2013 letter, Matiere SAS informed the Department of Labor and Employment that because its last shipment had been delivered, it would have to terminate the employment of five workers: Wilson G. Comia, Richard E. Comia, Alexander M. Menor, Alvin P. Roselim, and Acosta. The company stated that Wilson, Richard, and Menor were all based in Subic, while Roselim was based in Cagayan de Oro, and that all four were assigned to stripping operations; Acosta, who was based in the office, was described as primarily in charge of the monitoring of shipments. On June 28, 2013, Matiere SAS filed before the Department of Labor and Employment an Establishment Employment Report citing redundancy and the completion of delivery of supplies as its reasons for dismissing its employees, and a List of Affected Workers by Displacements/Flexible Work Arrangements enumerating the five dismissed employees. The employment termination was made effective on July 31, 2013.

On July 23, 2013, Acosta filed before the National Labor Relations Commission a Complaint for illegal dismissal against Matiere SAS and Gouvary. Mediation conferences were conducted, but the parties failed to arrive at a settlement and were required to submit their respective pleadings. While the case was pending, Matiere SAS and Gouvary, through counsel, wrote Acosta a letter dated July 29, 2013 offering him a separation pay of ₱322,998.60, which he refused.

In her August 18, 2014 Decision, Labor Arbiter Vivian Magsino-Gonzalez found Acosta's dismissal illegal, holding that Matiere SAS and Gouvary failed to prove the factual bases for the reduction of its workforce. She pointed out that while Matiere SAS submitted a Certificate of Completion from the Department of Public Works and Highways to support its claim of project completion, it submitted no such certificate from the Department of Agrarian Reform, and that it failed to submit any redundancy plan or to provide fair and reasonable criteria in ascertaining what positions were redundant and how the selection of employees to be dismissed was made. She reasoned that if employees were to be affected by the reduction of workforce due to completion of deliveries, the field engineers in charge of deliveries in the projects, who supervised the stripping works of removing the unibridge parts from the container vans, might be the first to go, yet these field engineers were undisputedly retained by the respondents; that Wilson, Richard, and Menor were helpers working under the supervision of field engineers, while Roselim was a forklift operator; and that as a Technical Assistant whose duties included monitoring of projects until completion, there was no substantial basis for Acosta to be affected by the redundancy plan.

Both parties appealed to the National Labor Relations Commission. Acosta argued in his Partial Memorandum of Appeal that the computation of the award should be based on his monthly salary before termination, which was ₱78,280.00, praying that the award be modified to ₱1,846,389.44. Matiere SAS and Gouvary, in their Memorandum of Appeal, contended that the termination was valid and that they implemented the redundancy based on fair and reasonable criteria. In its January 30, 2015 Decision, the National Labor Relations Commission reversed the Labor Arbiter, finding that Matiere SAS and Gouvary proved a significant decrease in the volume of their business by presenting a Certificate of Completion from the Department of Agrarian Reform; that the completion of the government contracts rendered unnecessary the services of Acosta, whose main function was to monitor the delivery of materials from France to the Philippines; that Acosta and the four other employees were similarly situated since even if Acosta had a higher position, their tasks were all related to the shipment of materials; and that, absent ill motive or bad faith, the company's decision should be respected as a valid exercise of management prerogative. Acosta moved for reconsideration, submitting a certification from Woodfields Consultants, Inc. and a certification from the Department of Public Works and Highways to support his claim that his task was not limited to monitoring shipments, and alleging that Matiere SAS hired a certain Charlie Desamito as his replacement. In its February 27, 2015 Resolution, the National Labor Relations Commission partially granted the Motion and amended the dispositive portion of its Decision to include the payment of Acosta's separation pay.

Acosta then filed before the Court of Appeals a Petition for Certiorari. In its April 7, 2017 Decision, the Court of Appeals denied the Petition, holding that Matiere SAS and Gouvary were able to establish that Acosta's position became redundant upon the completion of its contracts with the Department of Public Works and Highways and the Department of Agrarian Reform. It added that even assuming Acosta's functions included reporting and coordination, he completely failed to show that these functions were not incidental only to the supply and delivery of the bridges; that he did not dispute the completion of the shipments for the covered projects or that the DPWH and DAR projects were Matiere's only activities locally; that with the completion of the shipments his role became unnecessary; and that despite the continuation of installation and erection of the bridges, he could not pretend any involvement in such activities, his task being indubitably office- and table-bound and not field work. Acosta's Motion for Reconsideration was denied by the Court of Appeals in its July 12, 2017 Resolution.

• Absence of Fair and Reasonable Criteria: Petitioner maintained that the declaration of redundancy of his position was not based on fair and reasonable criteria, pointing out that he, the most senior engineer, was dismissed while the other engineers remained.
• Limited Scope of the Certifications: Petitioner argued that the certifications from the Department of Public Works and Highways and the Department of Agrarian Reform pertained only to one of his tasks as technical assistant, and that it was wrong to dismiss him based only on these certifications.
• Continuing Contractual Obligations: Petitioner contended that the supply contract covered only the delivery of bridging materials, while the design, technical supervision during erection, installation, and commissioning were still ongoing and to be completed in 2016; that he checked on the designs of the design consultants, coordinated with them, and evaluated their billings; and that the contracts with the DPWH and DAR comprised the supply of bridging materials, the supply of goods for the design, manufacture, and delivery of modular steel unibridges, the supply of technical advice, services, and materials, and variable services for installation and commissioning of the bridges.
• Unfinished Project Accomplishment: Petitioner asserted that the actual approved accomplishment for the design of DAR bridges alone as of June 2013 was only 16%, or 68 out of 418 bridges, and that he was then still checking, coordinating with consultants, and certifying billings of Woodfields Consultants, Inc. and Design Sciences, Inc., so he could have continued performing his assigned tasks but for his untimely and unjustified termination.

• Sufficiency of Proof of Redundancy: Respondents insisted that they sufficiently established that petitioner's position was already redundant, citing the certifications from the Department of Agrarian Reform and the Department of Public Works and Highways to prove that there was a significant diminution in the volume of their materials business.
• Irrelevance of Petitioner's Position: Respondents claimed that the completion of the shipments rendered petitioner's position irrelevant, and that he failed to prove that his other tasks were not merely incidental to his main function, leaving them no choice but to legally dismiss him.
• Absence of Bad Faith and Compliance with Labor Law: Respondents argued that they did not dismiss petitioner in bad faith, contending that they complied with labor law requirements in terminating his employment, pointing out that he was given a notice of termination with a computation of his separation pay and that the Department of Labor and Employment was also notified.
• Undisputed Completion of Shipments: Respondents claimed that petitioner did not deny that the shipments for their projects were already completed, nor did he dispute that respondent Matiere SAS' projects in the Philippines were only those with the Department of Agrarian Reform and the Department of Public Works and Highways.

• Redundancy: Whether petitioner Manuel G. Acosta was validly dismissed from employment on the ground of redundancy.

• Redundancy: No. The dismissal was illegal. Although respondents complied with the written notice and separation pay requisites, they failed to establish good faith and to show that fair and reasonable criteria were used in ascertaining which positions were to be declared redundant, as required by Article 298 of the Labor Code and the requisites for a valid redundancy program.

• Redundancy: Redundancy is an authorized cause for dismissing an employee under Article 298 of the Labor Code, which entitles the affected worker to separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher. Following Asian Alcohol Corporation vs. National Labor Relations Commission, the implementation of a redundancy program is valid only if the employer complies with four 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. The first and second requisites were satisfied — petitioner received the "Ending of the employment agreement" letter on June 27, 2013 while the Department of Labor and Employment received the Establishment Employment Report on June 28, 2013, both at least a month before the July 31, 2013 effectivity date, and petitioner received a computation of his separation pay corresponding to at least one month pay for every year of service with additional payment for economic assistance. The third and fourth requisites were not met. To establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions. Respondents' only basis for declaring petitioner's position redundant was that his function of monitoring the delivery of supplies became unnecessary upon completion of the shipments, but the Employment Agreement itself contradicted this allegation: Schedule "A" listed petitioner's tasks as preparing reports regarding Woodfields Consultants, Inc. consultants; acting as intermediary between the CAD operators in Woodfields Consultants, Inc. and the management in the office; attending coordination meetings with consultants; evaluating billings; following the SIT and preparing reports; preparing various reports as required by the resident manager; and conducting site visits. Monitoring shipments was nowhere in the job description, and respondents presented no evidence to support their claim or to contradict petitioner's documentary evidence, leaving no basis to consider his position irrelevant upon completion of the shipments. As to the fourth requisite, Panlilio vs. National Labor Relations Commission teaches that fair and reasonable criteria may take into account the preferred status, efficiency, and seniority of employees to be dismissed due to redundancy, yet respondents never showed that they used any of these in choosing petitioner among the employees affected. Petitioner could not be considered similarly situated with the other four dismissed employees: Roselim was a forklift operator, while Richard, Wilson, and Menor were helpers assigned to field engineers, and all four worked directly with the delivery of supplies, whereas petitioner's duty was not limited to the monitoring of deliveries. Petitioner was therefore illegally dismissed.

• Redundancy — Redundancy, for purposes of the Labor Code, 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 may result from factors such as overhiring of workers, decreased volume of business, or the dropping of a particular product line or service activity previously undertaken by the enterprise. The employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business. In this case, the Court assumed that respondents could declare some positions redundant due to the alleged decrease in business volume, but held that they still had to comply with the requisites of a valid redundancy program.
• Requisites of a Valid Redundancy Program — Under Asian Alcohol Corporation vs. National Labor Relations Commission, the employer must comply with four 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. The Court found the first two requisites satisfied but the last two wanting, and on that ground declared the dismissal illegal.
• Good Faith in Redundancy — To establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions. Respondents failed this burden because their sole basis — the completion of shipments rendering petitioner's shipment-monitoring function unnecessary — was contradicted by the Employment Agreement's Schedule "A," which did not list shipment monitoring among petitioner's duties, and no evidence was presented to support their claim or rebut petitioner's documentary evidence.
• Fair and Reasonable Criteria — Under Panlilio vs. National Labor Relations Commission, fair and reasonable criteria in redundancy may take into account the preferred status, efficiency, and seniority of the employees to be dismissed. Respondents never showed that they used any of these criteria in selecting petitioner as among the employees affected by the redundancy. The Court likewise held that petitioner was not similarly situated with the four other dismissed employees — a forklift operator and three helpers assigned to field engineers who worked directly with the delivery of supplies — because his duty was not limited to the monitoring of deliveries.

• "In redundancy, an employer must show that it applied fair and reasonable criteria in determining what positions have to be declared redundant. Otherwise, it will be held liable for illegally dismissing the employee affected by the redundancy." — This opening statement of the Decision states the ratio decidendi in capsule form: the failure to apply fair and reasonable criteria in a redundancy program renders the employer liable for illegal dismissal.
• "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." — Quoting Asian Alcohol Corporation vs. National Labor Relations Commission, this is the canonical formulation of the four requisites of a valid redundancy program and the framework against which the Court tested respondents' compliance.
• "[R]edundancy, for purposes of our Labor Code, exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, 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 overhiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise." — Quoting Wiltshire File Company, Inc. vs. National Labor Relations Commission, this passage supplies the definition of redundancy applied in the case and identifies the factors that may give rise to superfluous positions.
• "[T]o establish good faith, the company must provide substantial proof that the services of the employees are in excess of what is required of the company, and that fair and reasonable criteria were used to determine the redundant positions." — Quoting Manggagawa ng Komunikasyon sa Pilipinas vs. Philippine Long Distance Telephone Company, Inc., this passage fixes the evidentiary standard for the third requisite and is the basis for the finding that respondents failed to discharge their burden.

• Wiltshire File Company, Inc. vs. National Labor Relations Commission, 271 Phil. 694 (1991) — Cited as the source of the definition of redundancy, explaining that a position is redundant where it is superfluous and that superfluity may result from overhiring, decreased volume of business, or the dropping of a product line or service activity.
• Asian Alcohol Corporation vs. National Labor Relations Commission, 364 Phil. 912 (1999) — Cited as the controlling precedent laying down the four requisites for the valid implementation of a redundancy program, which the Court applied in assessing respondents' compliance.
• Panlilio vs. National Labor Relations Commission, 346 Phil. 30 (1997) — Cited for the rule that fair and reasonable criteria in redundancy may take into account the preferred status, efficiency, and seniority of the employees to be dismissed; the Court used it to find that respondents failed to show any criteria in selecting petitioner.
• Manggagawa ng Komunikasyon sa Pilipinas vs. Philippine Long Distance Telephone Company, Inc., 809 Phil. 106 (2017) — Cited for the standard of good faith in redundancy, requiring substantial proof that the services of the employees are in excess of what is required and that fair and reasonable criteria were used to determine the redundant positions.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited as the basis for imposing interest at the rate of six percent (6%) per annum on the total judgment award from the finality of the Decision until its full satisfaction.

• Article 298 [283], Labor Code of the Philippines (Closure of Establishment and Reduction of Personnel) — The employer may terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses, or the closing or cessation of operation of the establishment or undertaking, unless the closing is for the purpose of circumventing the provisions of the Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected is entitled to separation pay equivalent to at least his one month pay or to at least one month pay for every year of service, whichever is higher. The Court applied this provision as the statutory basis for the authorized cause of redundancy and for the separation pay due to petitioner, while holding that compliance with the notice and separation pay requirements did not excuse the employer's failure to establish good faith and fair and reasonable criteria.

Peralta (Chairperson), A. Reyes, Jr., Hernando, and Inting, JJ.