Almodiel vs. NLRC

The termination of a managerial employee based on redundancy is valid when effected in the normal exercise of business judgment and management prerogative, provided there is no showing of arbitrary or malicious action by the employer; furthermore, Article 40 of the Labor Code requiring employment permits applies exclusively to non-resident aliens, not to resident aliens who are permanent residents of the Philippines.

The case arose from the implementation of a standardized computerized cost accounting system across all worldwide subsidiaries of Raytheon Company, which allegedly rendered the position of Cost Accounting Manager in the Philippine operations redundant, leading to the termination of the incumbent Filipino manager who claimed his functions were merely transferred to a resident alien.

• Petitioner Farle P. Almodiel, a Certified Public Accountant with an MBA and 21 years of work experience, was hired by respondent Raytheon Philippines, Inc. in October 1987 as Cost Accounting Manager through a placement firm, with a starting monthly salary of P18,000.00, later increased to P21,600.00 after regularization.
• As Cost Accounting Manager, his duties included planning and coordinating year-end physical inventory, formulating standard product costing and pricing analysis, and setting up the written Cost Accounting System for the entire company.
• On August 17, 1988, petitioner submitted a Cost Accounting/Finance Reorganization proposal affecting the entire finance group, which was disapproved by the Controller, though he was assured that if his position became untenable, he would be given a three-year advance notice.
• Raytheon installed a standard cost accounting system used worldwide by its subsidiaries, which was adopted in the Philippine operations, allegedly reducing the Cost Accounting Manager's functions to merely submitting periodic reports using computerized forms prescribed by the international head office in California, USA.
• On January 27, 1989, petitioner was informed by his immediate superior that his position was abolished due to redundancy, effective after the one-month notice period; despite his pleas for deferment or transfer to another department, management maintained the decision was final and had been conveyed to the Department of Labor and Employment.
• Petitioner refused to acknowledge the termination notice and the check for P54,863.00 representing separation pay, which were subsequently sent to him via registered mail on January 30, 1989.
• Petitioner claimed that his functions were absorbed by the Payroll/MIS/Finance Department under Danny Ang Tan Chai, a resident alien allegedly without a working permit from the Department of Labor and Employment, and that he was better qualified than Ang Tan Chai, being a CPA with extensive experience compared to the latter's background as an Industrial Engineer and Systems Analyst Programmer.
• Respondent maintained that Ang Tan Chai was a permanent resident born in the Philippines who did not displace petitioner, as the Cost Accounting Manager position was totally abolished and its functions completely dispensed with, not merely transferred.

• The termination was illegal because it was highly irregular and tainted with malice, bad faith, and arbitrariness, as evidenced by the Controller's prior assurance of a three-year notice if the position became untenable.
• The abolition of his position was a sham because his functions were merely absorbed by Danny Ang Tan Chai, a resident alien employed without the required working permit from the Department of Labor and Employment in violation of Article 40 of the Labor Code.
• He possessed superior qualifications compared to Ang Tan Chai (being a CPA with MBA units and 21 years of experience versus an Industrial Engineer with less experience), and as a natural-born Filipino, he should have been preferred for the position or transferred to the Payroll/MIS/Finance Department instead of being terminated.
• The redundancy was not genuine because indispensable functions of his position were merely dispersed to other units in the Finance Department.

• The termination was valid under Article 283 of the Labor Code due to genuine redundancy occasioned by the installation of a computerized standard cost accounting system worldwide, which rendered the position of Cost Accounting Manager unnecessary.
• Danny Ang Tan Chai did not absorb petitioner's functions or displace him, as Ang Tan Chai occupied a distinct position requiring different expertise; the Cost Accounting Manager position was completely abolished, not merely transferred.
• Ang Tan Chai is a permanent resident of the Philippines born in the country, making him a resident alien to whom Article 40 of the Labor Code (requiring employment permits) does not apply.
• The employer exercised valid management prerogative in abolishing the position as a cost-saving measure and in determining the qualifications of personnel, and courts may not interfere with such business judgment absent a showing of arbitrary or malicious action.
• Petitioner was duly served written notice one month prior to termination and offered separation pay in accordance with statutory requirements.

• Procedural Issues:
  • Whether the National Labor Relations Commission committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the Labor Arbiter's decision and upholding the termination based on redundancy.
• Substantive Issues:
  • Whether the termination of the petitioner on the ground of redundancy was valid and justified under Article 283 of the Labor Code.
  • Whether the abolition of the position was tainted with bad faith, malice, or irregularity, particularly considering the alleged absorption of functions by another employee.
  • Whether Article 40 of the Labor Code, requiring employment permits for aliens, applies to resident aliens or only to non-resident aliens.
  • Whether the employer discriminated unlawfully by allegedly replacing the petitioner with a resident alien lacking the requisite employment permit.

• Procedural:
  • The NLRC did not commit grave abuse of discretion in reversing the Labor Arbiter's decision; the reversal was supported by substantial evidence and valid legal grounds, as the Labor Arbiter's findings of bad faith and malice were not supported by the evidence on record.
• Substantive:
  • The termination due to redundancy was valid under Article 283 of the Labor Code because the installation of a computerized cost accounting system rendered the position of Cost Accounting Manager excess to the actual requirements of the enterprise, constituting a legitimate exercise of management prerogative to adopt sound business practices.
  • No bad faith or malice attended the termination; even assuming arguendo that the functions were absorbed by another department, such transfer does not affect the legitimacy of redundancy when done in the normal exercise of business judgment, and the employer has no legal obligation to keep more employees than necessary.
  • Article 40 of the Labor Code applies exclusively to non-resident aliens; since Danny Ang Tan Chai is a resident alien (permanent resident born in the Philippines), he is not required to obtain an employment permit from the Department of Labor and Employment.
  • The employer has the exclusive prerogative to determine qualifications for hiring and firing, and courts cannot substitute their judgment for that of management regarding the choice of personnel, provided there is no unlawful discrimination; the objection that one has better credentials than the appointee is frowned upon so long as the appointee possesses the minimum qualifications for the position.

• Management Prerogative — Employers possess the exclusive right to determine the qualification and fitness of workers for hiring, firing, promotion, or reassignment, and to conduct their business according to their own discretion and judgment, free from judicial interference except in cases of unlawful discrimination or violations of law; this prerogative includes the right to abolish positions when dictated by economic or operational necessities.
• Redundancy as Authorized Cause for Termination — Redundancy exists when the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise; the characterization of an employee's services as no longer necessary or sustainable is an exercise of business judgment by the employer that is not subject to discretionary review by labor tribunals or courts absent a showing of violation of law, arbitrary action, or malicious intent.
• Distinction Between Resident and Non-Resident Aliens under Labor Code — Article 40 of the Labor Code, which requires employment permits for aliens, applies only to non-resident aliens seeking entry for employment purposes; resident aliens who are permanent residents of the Philippines are not required to obtain such permits, as the law's intent is to protect local labor market from foreign competition by ensuring non-resident aliens are employed only when no competent, able, and willing Filipino is available.

• "Redundancy, 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."
• "The characterization of an employee's services as no longer necessary or sustainable, and therefore, properly terminable, was an exercise of business judgment on the part of the employer. The wisdom or soundness of such characterization or decision was not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action is not shown."
• "Article 40 of the Labor Code which requires employment permit refers to non-resident aliens. The employment permit is required for entry into the country for employment purposes and is issued after determination of the non-availability of a person in the Philippines who is competent, able and willing at the time of application to perform the services for which the alien is desired. Since Ang Tan Chai is a resident alien, he does not fall within the ambit of the provision."
• "It is a well-settled rule that labor laws do not authorize interference with the employer's judgment in the conduct of his business. The determination of the qualification and fitness of workers for hiring and firing, promotion or reassignment are exclusive prerogatives of management."

• Wiltshire File Co., Inc. v. NLRC — Cited as controlling precedent for the definition of redundancy and the principle that the characterization of services as no longer necessary is a business judgment not subject to review absent bad faith or violation of law.
• International Macleod, Inc. v. Intermediate Appellate Court — Cited for the principle that the determination to phase out a department as a labor-saving device is a management prerogative that courts will not interfere with absent abuse of discretion or arbitrary action.
• Bondoc v. People's Bank and Trust Co. — Cited for the principle that the board of directors possesses the power to remove department managers and determine whether the interest of the institution justifies the existence of a department, even if some vindictive motivation exists.
• National Federation of Labor Unions v. NLRC — Cited for the principle that labor laws do not authorize interference with the employer's judgment in conducting business and that determination of qualifications for hiring and firing are exclusive management prerogatives.
• Coca-Cola Bottlers Phils., Inc. v. NLRC — Cited for the principle that employers have a much wider discretion in terminating the employment of managerial personnel compared to rank-and-file employees.
• D.M. Consunji, Inc. vs. NLRC — Cited alongside Coca-Cola Bottlers for the principle regarding wider discretion in terminating managerial employees.

• Article 283 of the Labor Code (Closure of establishment and reduction of personnel) — Governs termination of employment due to redundancy, retrenchment, or closure of business, including the requirement of written notice to the employee and DOLE at least one month prior to termination, and entitlement to separation pay equivalent to at least one month pay for every year of service.
• Article 40 of the Labor Code (Employment permit of non-resident aliens) — Clarified by the Court to apply only to non-resident aliens seeking entry into the Philippines for employment purposes, and not to resident aliens who are permanent residents of the country.

• N/A (Narvasa, C.J., Padilla and Regalado, JJ., concurred without writing separate opinions)