Arrieta vs. NLRC

A bona fide company reorganization that abolishes positions and reassigns employees, absent bad faith, discrimination, or singling out of a particular employee, constitutes a valid exercise of management prerogative and does not amount to constructive dismissal, even if the employee receives a lower grade under the new plantilla, provided there is no diminution in salary and the new position involves duties similar to the old one.

Petitioner Carmen Arrieta was employed by Central Negros Electric Cooperative, Inc. (CENECO), an electric cooperative servicing central Negros. Private respondent Christopher Rios served as CENECO's General Manager. The dispute arose from CENECO's 1991 reorganization of its entire staffing pattern, undertaken to streamline operations and align employee assignments with educational attainment, qualifications, aptitude, and competence. The reorganization abolished all positions under the cooperative's 1987 plantilla and replaced them with a new plantilla proposed by a Steering Committee specifically formed for that purpose.

Petitioner Carmen Arrieta began her employment at CENECO on January 16, 1988, as Executive Secretary to the President and the Board of Directors under the cooperative's 1987 plantilla, holding a grade of 7-B and a basic monthly salary of P2,360.00. On April 16, 1988, she was appointed for an indefinite period to the Office of the Board of Directors as its Executive Secretary under Grade 9 and Rank 9-B, with a basic rate of P3,325.00. While still enjoying the prerequisites and status of Executive Secretary, she was detailed to the Engineering Department as its Secretary on August 28, 1989. On April 19, 1991, her rank was upgraded to 9-1, and she began receiving a monthly salary of P4,947.00 (Basic — P3,685.00; CBA — P900.00; Longevity — P250.00; Longevity Pay — P112.00).

On December 18, 1991, the CENECO Board of Directors passed Resolution No. 5446, abolishing all positions in the 1987 plantilla and adopting a new plantilla proposed by the cooperative's Steering Committee for Reorganization. The reorganization aimed to streamline operations and assign employees in accordance with their educational attainment, qualifications, aptitude, and competence. Under the new plantilla, the Office of the Board of Directors no longer had an Executive Secretary; instead, it provided for a Secretary/Stenographer with a grade of 7-9 and an Assistant Secretary with a grade of 5-5. Only Senior Linemen were eligible for petitioner's former rank of 9-1 under the new personnel setup.

Pursuant to the Board's resolution, petitioner was permanently appointed as Secretary in the Engineering Department effective December 1, 1991, with a new grade of 6-5 but the same monthly rate of P4,947.00 (Basic — P3,243.80; CBA — P900.00; Longevity Pay — P250.00; Holiday Pay — P112.00; Salary differential — P441.20). The grade of 6-5 was assigned to all department secretaries and carried a salary scale of P4,505.80. To maintain her previous salary level, the cooperative granted her salary differentials unlike other department secretaries. Petitioner refused to accept her new grade assignment and signed her appointment under protest.

On January 24, 1992, petitioner sent a letter to General Manager Christopher Rios demanding restoration to her previous position of Executive Secretary with a rank of 9-1 and a salary rate of P3,325.00. She later pointed to Resolution No. 5619, Series of 1993, in which the Board upgraded the grade of Secretary in the Office of the Board of Directors to 9-B from 7-9 and the grades of Secretary in the Office of the General Manager and Assistant Secretary in the Office of the Board of Directors to 6-5 from 5-5, effective March 10, 1993, as evidence that the reorganization was a ploy to remove her. When the cooperative refused to accede to her demands, petitioner filed a complaint before the Labor Arbiter to compel reinstatement without loss of rank, grade, or seniority rights. The Labor Arbiter found for petitioner and declared her constructively dismissed, ordering reinstatement and payment of salary differentials, moral damages, exemplary damages, and attorney's fees. On appeal, the NLRC reversed the Labor Arbiter and dismissed the complaint upon a finding of no constructive discharge. Petitioner then elevated the matter to the Supreme Court via a special civil action.

• Diminution of Pay: Petitioner argued that her basic monthly salary was reduced from P3,325.00 to P3,243.00, representing a decrease of P81.20, constituting a diminution in pay.
• Demotion in Rank and Grade: Petitioner contended that she was demoted from grade 9 and rank 9-B as Executive Secretary to pay class/step of 6-5 as Secretary of the Engineering Department.
• Demeaning Nature of New Position: Petitioner averred that she was demoted from a "position of dignity (Executive Secretary) to a mere servile or menial position (Department Secretary) which is unreasonable, humiliating or demeaning to say the least."
• Bad Faith and Ploy: Petitioner insisted that her appointment as Engineering Department Secretary was a ploy to remove her as Executive Secretary, citing Resolution No. 5619 (Series of 1993) which upgraded the grades of the Board of Directors' Secretary and other positions two years after the reorganization.
• Vested Right to Position: Petitioner maintained that as a regular employee, she had acquired a vested right to the position of Executive Secretary, together with its corresponding grade, rank, and salary, which could not be impaired by the 1991 reorganization.

• Constructive Dismissal: Whether petitioner was constructively dismissed when CENECO, through a bona fide reorganization, abolished her former position and appointed her to a new position with a lower grade but the same salary.
• Validity of Reorganization: Whether the abolition of all positions under the old plantilla and adoption of a new one constituted a valid exercise of management prerogative.
• Diminution of Pay: Whether there was a diminution in petitioner's salary as a result of the reorganization.
• Demotion in Rank: Whether the change in petitioner's grade from 9-B to 6-5 constituted a true demotion in rank.

• Constructive Dismissal: No. There was no constructive dismissal because the reorganization was a valid exercise of management prerogative undertaken in good faith, with no demotion in rank or diminution in pay.
• Validity of Reorganization: Yes, the reorganization was valid. Absent any finding of bad faith, the abolition of positions deemed unnecessary is a valid exercise of management prerogative, and security of tenure cannot deprive an employer of that right.
• Diminution of Pay: No. Petitioner's salary was maintained at the same level through salary differentials; any difference in base pay was fully offset by the differential pay of P441.20 granted by the cooperative.
• Demotion in Rank: No. The difference in grade was merely a difference in nomenclature between two different plantillas with different salary allocations; a lower grade under the new plantilla did not necessarily mean a demotion.

• Constructive Dismissal: A constructive discharge is defined as "a quitting because continued employment is rendered impossible, unreasonable or unlikely; as, an offer involving a demotion in rank and a diminution in pay." Applying this standard, neither element was present. There was no demotion in rank — the change in grade was merely nomenclatural, as the two plantillas had different salary allocations for each position. There was no diminution in pay — petitioner's total monthly compensation remained at P4,947.00, with salary differentials making up any difference in base rate. Moreover, petitioner's new position involved duties and functions similar to those of her old position, requiring the same capabilities and skills. No evidence was presented to show how the appointment caused humiliation, and the fact that other department secretaries did not complain about the nature of their jobs negated the claim that the position was servile or menial. Accordingly, no constructive dismissal occurred.

• Validity of Reorganization: The power of the board of directors to implement a reorganization, including the abolition of positions, is implied or incidental to its power to conduct the regular business affairs of the corporation. Management is at liberty, absent any malice, to abolish positions it deems no longer necessary. Where there is nothing indicating that a position was abolished to ease an employee out, the deletion should be accepted as a valid exercise of management prerogative. In this case, all positions in the old plantilla were abolished and all employees were given new appointments; petitioner was not singled out. The reorganization affected the entire personnel force of 426 employees, and it was implausible that the cooperative would undertake the expenditure and effort of a full reorganization merely to dismiss one employee. A committee specifically formed for the purpose conducted a thorough review of both indispensable and unessential positions before the Board acted. Security of tenure, while constitutionally guaranteed, cannot be used to deprive an employer of its prerogatives under the law. The subsequent upgrading of certain positions under Resolution No. 5619 (1993) could not be invoked in petitioner's favor because it occurred two years after the 1991 reorganization and thus did not show discrimination.

• Diminution of Pay: Whether "pay" is construed inclusively of fringe benefits or exclusively of basic salary, the conclusion is the same. Under the first concept, petitioner's last total monthly salary of P4,947.00 was maintained in her new appointment. Under the second concept, any difference in basic pay was adequately compensated by the differential pay of P441.20, which exceeded the P81.20 shortfall petitioner claimed. In reality, petitioner appeared to be suppressing the salary adjustment made on April 19, 1991, which raised her basic salary to P3,685.00; with the new base pay of P3,243.80 plus the P441.20 differential, she continued to receive exactly P3,685.00 — no more, no less.

• Demotion in Rank: The alleged demotion from rank 9-B (actually 9-1) to rank 6-5 was only a demotion in numbers or nomenclature. The two ranks belong to two different plantillas with different sets of salary allocations for each itemized position. A lower grade in the 1991 plantilla as compared to the 1987 plantilla did not necessarily mean a demotion, just as a higher number would not necessarily operate as a promotion. To compel the cooperative to restore petitioner's old ranking would deprive it of the right to adopt changes in its personnel structure as proposed by the Steering Committee, thereby rendering the reorganization ineffectual.

• Management Prerogative in Reorganization — The power of the board of directors of a corporation to implement a reorganization, including the abolition of various positions, is implied or incidental to its power to conduct the regular business affairs of the corporation. Absent any malice or bad faith, management is at liberty to abolish positions it deems no longer necessary. Where there is nothing indicating that an employee's position was abolished to ease him out of employment, the deletion of that position should be accepted as a valid exercise of management prerogative. The Court applied this doctrine by finding that CENECO's reorganization was undertaken in good faith — all positions were abolished, all employees were reassigned, and petitioner was not singled out.

• Constructive Dismissal — A constructive discharge is defined as "a quitting because continued employment is rendered impossible, unreasonable or unlikely; as, an offer involving a demotion in rank and a diminution in pay." The Court found neither element present: there was no true demotion in rank (the difference was merely nomenclatural between two plantillas) and no diminution in pay (salary differentials fully offset any base-rate difference).

• Security of Tenure vs. Management Prerogatives — While security of tenure is constitutionally guaranteed, it cannot be used to deprive an employer of its prerogatives under the law. The law must protect not only the welfare of employees but also the right of an employer to exercise what are clearly management prerogatives.

• "where there is nothing that would indicate that an employee's position was abolished to ease him out of employment, the deletion of that position should be accepted as a valid exercise of management prerogative." — This passage articulates the controlling standard for evaluating the validity of position abolition during reorganization: the absence of bad faith or intent to ease out the employee.

• "security of tenure, while constitutionally guaranteed, cannot be used to deprive an employer of its prerogatives under the law." — This formulation defines the boundary between an employee's constitutional right to security of tenure and an employer's statutory right to exercise management prerogatives, including reorganization.

• "there are no menial jobs, only menial attitudes." — This statement rebuts the petitioner's claim that her new position was servile or demeaning, underscoring that the nature of a position is not determined by its title but by the skills and capabilities it requires.

• "A constructive discharge is defined as: 'A quitting because continued employment is rendered impossible, unreasonable or unlikely; as, an offer involving a demotion in rank and a diminution in pay.'" — This is the canonical definition of constructive dismissal adopted by the Court, citing Philippine Japan Active Carbon Corporation vs. NLRC, and serves as the test applied to the facts of the case.

• Aurelio vs. National Labor Relations Commission, G.R. No. 99034, April 12, 1993, 221 SCRA 432 — Controlling precedent followed. Upheld the power of the board of directors of a corporation to implement a reorganization, including the abolition of positions, as implied or incidental to its power to conduct the regular business affairs of the corporation.

• Philippine Japan Active Carbon Corporation vs. National Labor Relations Commission, G.R. No. 83239, March 8, 1989, 171 SCRA 164 — Authoritative precedent followed for the definition of constructive discharge as a quitting because continued employment is rendered impossible, unreasonable, or unlikely, involving a demotion in rank and diminution in pay.

• Great Pacific Life Assurance Corporation vs. NLRC, G.R. No. 88011, July 30, 1990, 188 SCRA 139 — Cited in support of the proposition that absent bad faith, the abolition of a position is a valid exercise of management prerogative.

• Peña vs. NLRC, G.R. No. 100629, July 5, 1996, 258 SCRA 65 — Cited for the principle that security of tenure cannot be used to deprive an employer of its prerogatives under the law.

• Yap vs. Inciong, G.R. No. 51314, June 21, 1990, 186 SCRA 664 — Cited for the principle that the law must also protect the right of an employer to exercise management prerogatives.

• Philippine Advertising Counselor's, Inc. vs. NLRC, G.R. No. 120008, October 18, 1996 — Cited for the proposition that a company reorganization may be utilized to drive an employee out of work, though the Court found this inapplicable on the facts.

• Constitutional Guarantee of Security of Tenure — The decision references security of tenure as constitutionally guaranteed but holds that it cannot be used to deprive an employer of its prerogatives under the law, including the prerogative to reorganize and abolish unnecessary positions.

Puno, Mendoza, and Torres, Jr., JJ., concurred.