Batongbacal vs. Associated Bank

A resignation, even one denominated "courtesy," is valid only if voluntary; an employer may not compel its officers to submit courtesy resignations in the guise of streamlining its organization, and an employee's refusal to obey such an unlawful order cannot be imputed to him as insubordination or as a ground for loss of confidence justifying dismissal.

Petitioner Bienvenido R. Batongbacal, a lawyer admitted to the Bar in 1952, began his banking career in 1961 as manager of the Second Rizal Development Bank and transferred to the Citizens Bank and Trust Company on November 2, 1966, where he was appointed assistant vice-president without a definite period. On October 14, 1975, Citizens Bank and Trust Company merged with the Associated Banking Corporation, and the merged entity later became known as Associated Bank, where petitioner resumed his position as assistant vice-president. Beginning in 1981, the bank was in the throes of financial reverses arising from the Dewey Dee scandal, from which it recovered only through a capital infusion supplied by the Development Bank of the Philippines and an emergency loan provided by the Central Bank.

Petitioner Bienvenido R. Batongbacal, a lawyer admitted to the Bar in 1952, began his banking career in 1961 as manager of the Second Rizal Development Bank and transferred to the Citizens Bank and Trust Company on November 2, 1966, where he was appointed assistant vice-president "to assist the Senior Vice-President as directly in charge of the Loans and Discounts Department" and, concurrently, acting manager of the personnel and administration department "in lieu of the Vice-President and Treasurer," an appointment without a definite period. On October 14, 1975, Citizens Bank and Trust Company merged with the Associated Banking Corporation, and the merged entity later became known as Associated Bank, where petitioner resumed his position as assistant vice-president.

In March 1982, petitioner learned that his salary and allowances were very much below the standard remuneration of the bank's other assistant vice-presidents and were even less than those paid to employees holding positions lower than that rank. He wrote the bank's board of directors requesting payment of the accrued salary and allowances arbitrarily withheld from him, and followed this up with a letter dated November 12, 1982. When his letters went unanswered, he wrote the newly appointed vice-president for administration on February 4, 1983, pointing out that although he was the most senior of the assistant vice-presidents, he was receiving an annual salary of P27,000 while the four other assistant vice-presidents were each receiving P42,000, P54,000, P60,000, and P72,000. The letter fell on deaf ears.

On March 15, 1983, the bank's board of directors met and approved a resolution giving the new management the necessary flexibility in streamlining the bank's operations and requiring the bank officers at the Head Office and the Branches with the corporate rank of Manager and higher to submit immediately to the President their courtesy resignations, authorizing the President to implement the resolution. Petitioner did not submit his courtesy resignation. On May 3, 1983, he received a letter dated April 26, 1983 from Executive Vice-President Ramon F. Chanyungco, issued for the Steering Committee, advising him that the Board of Directors had accepted his resignation effective immediately and directing him to arrange with the Personnel Administration Unit for the settlement of any accountabilities and to turn over all pending official matters to his division or department head.

Shocked by this turn of events, petitioner wrote the bank's executive vice-president on the same day requesting a reconsideration of the board's decision, stating that he had thought the call for the submission of courtesy resignations was only for erring "loathsome" officers and not for those like him who had served the bank honestly and sincerely for sixteen years; that although he was a stockholder with the smallest investment in the bank, he had called the attention of higher officers to matters of vital importance to the bank's financial stability; and that should there be evidence of any act of dishonesty on his part, the bank should so inform him so that he could accordingly submit his voluntary resignation. Beginning May 4, 1983, petitioner was not paid his usual salary and allowance, and his repeated requests for reconsideration of the bank's decision were ignored.

Because his requests were ignored, petitioner filed a complaint for illegal dismissal and damages in the arbitration branch of the National Labor Relations Commission. The bank maintained that those who submitted letters of resignation were allowed to re-apply for positions where their qualifications were best suited, while those who did not submit such letters were terminated from employment for their alleged deliberate refusal to cooperate in its rehabilitation. Both the labor arbiter and the NLRC proceeded from the presumption that petitioner was a managerial employee.

• Rank-and-File Status: Petitioner claimed that notwithstanding his pompous title of assistant vice-president, he was actually a rank-and-file employee.

• Necessity of the Reorganization: Respondent maintained that, since 1981, it had been in the throes of financial reverses due to the Dewey Dee scandal and had redeemed itself only through a capital infusion from the Development Bank of the Philippines and an emergency loan from the Central Bank, and that to streamline its operations the new management called upon all its employees to submit their courtesy resignations and considered all executive positions vacant.
• Differential Treatment of Officers: Respondent claimed that those who submitted letters of resignation were allowed to re-apply for positions where their qualifications were best suited, while those who did not submit such letters were terminated from employment for their alleged deliberate refusal to cooperate in its rehabilitation.
• Insubordination: Respondent asserted that petitioner's employment was terminated for insubordination in view of his failure to comply with the order to submit his letter of courtesy resignation.
• Loss of Confidence: Respondent contended that petitioner's refusal to submit his letter of courtesy resignation was "sufficient reason to distrust him," and that petitioner was "purged" because he sabotaged the bank and "contributed, directly or indirectly" to its downfall.
• Manner of Dismissal: Respondent rationalized that the letter "accepting" petitioner's resignation was issued even though he had not actually submitted such a letter, so as not to jeopardize his chances of future employment.
• Managerial Status: Respondent asserted that petitioner was a managerial employee because he was "not only a department/unit head but an assistant vice-president" who was ranked higher than a manager "by any standard," and that to consider him a rank-and-file employee was "to stretch one's imagination too far."

• Legality of Dismissal for Refusal to Tender a Courtesy Resignation: Whether an employer bank may legally dismiss its assistant vice-president for refusal to tender his courtesy resignation which the bank required in line with its reorganization plan.
• Managerial or Rank-and-File Status: Whether petitioner, as assistant vice-president of the respondent bank, is a managerial or a rank-and-file employee.
• Moral and Exemplary Damages: Whether petitioner is entitled to an award of moral and exemplary damages.
• Salary Differential: Whether petitioner is entitled to the difference between his actual salary and that received by the assistant vice-president who had been given the salary next higher to his.

• Legality of Dismissal for Refusal to Tender a Courtesy Resignation: No. The dismissal was illegal; a resignation must be voluntary, and the bank's directive compelled an act that should be voluntary, so that insubordination could not be imputed to petitioner for refusing to obey an unlawful order.
• Managerial or Rank-and-File Status: Undetermined; remanded. The nature of the employee's functions, not the nomenclature or title of his job, determines status, and the bank failed to present substantial proof that petitioner was vested with the powers and prerogatives of a managerial employee.
• Moral and Exemplary Damages: Undetermined; remanded. Justice and equity required that the question be considered below, the proceedings having left much to be desired.
• Salary Differential: No. While there was a semblance of discrimination in the bank's organizational set-up, the Court was not prepared to preempt the employer's prerogative to grant salary increases to its employees.

• Legality of Dismissal for Refusal to Tender a Courtesy Resignation: The Court acknowledged that the call for courtesy resignations was prompted by the bank's determination to survive its financial reverses, but declined to lend legality to the manner by which it pursued that goal. By directing its employees to submit letters of courtesy resignation, the bank in effect forced upon them an act which they themselves should voluntarily do, and resignation per se means voluntary relinquishment of a position or office. The addition of the word "courtesy" did not change the essence of resignation, and the fact that courtesy resignations were utilized in government reorganization did not give the bank the right to use the same device in its own reorganization and rehabilitation plan. The Court warned that there is no guarantee that all employers will not use it to rid themselves arbitrarily of employees they do not like in the guise of streamlining their organization, while employees would be unduly exposed to outright termination of employment, which is anathema to the constitutional mandate of security of tenure. Although the bank effected the dismissal through a letter "accepting" petitioner's resignation and rationalized that this was done so as not to jeopardize his chances of future employment, its pleadings made clear that petitioner was in fact terminated for insubordination in view of his failure to comply with the order to submit his letter of courtesy resignation. Insubordination, however, may not be imputed to one who refused to follow an unlawful order. Nor could loss of confidence supply the ground for dismissal, since loss of confidence must be supported by satisfactory evidence and, even with respect to managerial employees who under Policy Instructions No. 8 may be dismissed for lack of confidence, loss of trust must be substantiated and clearly proven. The record failed to show any valid reasons for terminating petitioner's employment: there were no proofs of malfeasance or misfeasance committed by petitioner which jeopardized the bank's interest, and the allegations that petitioner was "purged" because he sabotaged the bank and "contributed, directly or indirectly" to its downfall were mere subjective conclusions unsubstantiated by hard facts. To clothe with legality petitioner's dismissal for his failure to submit his letter of courtesy resignation would be to add a ground for termination of employment to the provisions of the Labor Code.
• Managerial or Rank-and-File Status: Notwithstanding the foregoing, the Court could not rule outright in favor of petitioner because there were factual issues which had to be dealt with below. A pivotal point was whether petitioner was a managerial or a rank-and-file employee, the parties presenting contradictory views: petitioner claimed that despite his title he was actually rank-and-file, while the bank asserted that he was managerial because he was not only a department or unit head but an assistant vice-president ranked higher than a manager by any standard. Article 212(k) of the Labor Code defines a managerial employee as one vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions, and provides that all employees not falling within that definition are considered rank-and-file. Policy Instructions No. 8, which took effect on April 23, 1976, treats as managerial employees those (1) who have the power to lay down management policies; (2) who have the power to hire, fire, demote, promote, and the like; and (3) who have the power to recommend effectively the first two. The determination would have been easy had the matter been properly threshed out below, but the onus of proof fell on the bank, which did not present substantial proof that petitioner was vested with any of the powers and prerogatives of a managerial employee, relying merely upon the bank's amended by-laws and upon petitioner's original appointment stating that he would "assist" the vice-president in the performance of his job — a function implying that he was not actually a policy-determining employee but one who had to wait for assignments from his superior. Notwithstanding this, both the labor arbiter and the NLRC proceeded from the presumption that petitioner was a managerial employee. The Court stressed that the nature of the employee's functions, and not the nomenclature or title given to his job, determines whether the employee has rank-and-file or managerial status, and that the determination gains importance in the face of the variance in the causes for the termination of employment of rank-and-file and managerial employees, much more so where the parties present contradictory views on the status of the employee.
• Moral and Exemplary Damages: Justice and equity demanded that the question whether petitioner was entitled to an award of moral and exemplary damages be considered, the proceedings below having left much to be desired. The Court noted with dismay the impracticality of the position paper method of disposing labor cases, as exemplified by the case, where the parties agreed to dispense with the hearing without knowing that more often than not both of them suffer adverse consequences. Had the parties agreed to a hearing and the concomitant presentation of evidence, the bank could have proven that petitioner was a managerial employee when he was dismissed, and petitioner could have proven the extent of the damages he sustained.
• Salary Differential: The Court agreed with the Solicitor General and the NLRC that petitioner was not entitled to an award of the difference between his actual salary and that received by the assistant vice-president who had been given the salary next higher to his. While there was a semblance of discrimination in that aspect of the bank's organizational set-up, the Court was not prepared to preempt the employer's prerogative to grant salary increases to its employees. In this connection, the bank's claim that it needed to trim down its employees as a self-preservation measure was belied by the amount of salaries it was giving its other assistant vice-presidents.

• Courtesy Resignation and the Voluntariness of Resignation — Resignation per se means the voluntary relinquishment of a position or office. An employer may not direct its employees to submit letters of courtesy resignation, because such a directive in effect forces upon them an act which they themselves should voluntarily do; adding the word "courtesy" does not change the essence of resignation. The device of courtesy resignations used in government reorganization does not license a private employer to use the same in its own reorganization and rehabilitation plan, since there is no guarantee that employers will not use it to rid themselves arbitrarily of employees they do not like in the guise of streamlining, while employees would be unduly exposed to outright termination of employment, anathema to the constitutional mandate of security of tenure.
• Insubordination and the Duty to Obey an Unlawful Order — Insubordination may not be imputed to one who refused to follow an unlawful order. Because the bank's directive to submit a courtesy resignation was unlawful, petitioner's refusal to comply could not serve as a ground for his dismissal.
• Loss of Confidence as a Ground for Dismissal — Loss of confidence as a ground for dismissal must be supported by satisfactory evidence. Even with respect to managerial employees who, under Policy Instructions No. 8, may be dismissed for lack of confidence, loss of trust must be substantiated and clearly proven. Unsubstantiated allegations that the employee sabotaged the bank or contributed to its downfall are mere subjective conclusions that cannot sustain a dismissal.
• Managerial vs. Rank-and-File Employee — Under Article 212(k) of the Labor Code, a managerial employee is one vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions; all employees not falling within that definition are rank-and-file. Policy Instructions No. 8 identifies managerial employees as those (1) who have the power to lay down management policies; (2) who have the power to hire, fire, demote, promote, and the like; and (3) who have the power to recommend effectively the first two. The nature of the employee's functions, and not the nomenclature or title given to his job, determines whether the employee has rank-and-file or managerial status. The onus of proving managerial status rests on the employer.
• Employer's Prerogative to Grant Salary Increases — Courts will not preempt the employer's prerogative to grant salary increases to its employees; a semblance of discrimination in the employer's organizational set-up does not, by itself, justify judicial intervention in the setting of salaries.
• Position Paper Method in Labor Cases — The submission of position papers in lieu of a hearing is impractical, because claims of parties are not properly ventilated when they agree to dispense with the hearing, and more often than not both parties suffer adverse consequences from the absence of evidence.

• "It should be emphasized that resignation per se means voluntary relinquishment of a position or office." — This states the ratio decidendi on the nature of resignation, grounding the holding that a compelled courtesy resignation is no resignation at all.
• "Adding the word "courtesy" did not change the essence of resignation." — This defines the controlling doctrine that the label attached to a resignation does not alter the requirement of voluntariness, and is the formulation commonly invoked against compulsory courtesy resignation schemes.
• "We hold, however, that insubordination may not be imputed to one who refused to follow an unlawful order." — This is the ratio on insubordination, disposing of the bank's principal justification for the termination.
• "Of primordial consideration also is the fact that it is the nature of the employee's functions and not the nomenclature or title given to his job which determines whether the employee has rank-and-file or managerial status." — This is the canonical formulation of the test for managerial status, cited for the rule that job titles are not controlling.

• Ortiz vs. Comelec, G.R. No. 78957, June 28, 1988 — cited in support of the proposition that resignation per se means voluntary relinquishment of a position or office.
• De Leon vs. NLRC, G.R. No. 52056, October 30, 1980, 100 SCRA 691 — cited, together with the two cases below, for the rule that loss of confidence as a ground for dismissal must be supported by satisfactory evidence and, as to managerial employees, must be substantiated and clearly proven.
• St. Luke's Hospital, Inc. vs. NLRC, G.R. Nos. 54068 & 54142, August 30, 1982, 116 SCRA 240 — cited for the same rule on loss of confidence as a ground for dismissal.
• D.M. Consunji, Inc. vs. NLRC, G.R. No. 71456, July 30, 1986, 143 SCRA 204 — cited for the same rule on loss of confidence as a ground for dismissal.
• Engineering Equipment, Inc. vs. NLRC, G.R. No. 59221, December 26, 1984, 113 SCRA 752, 760 — cited for the rule that it is the nature of the employee's functions and not the nomenclature or title given to his job which determines whether the employee has rank-and-file or managerial status.

• Article 212(k), Labor Code — Defines a managerial employee as one vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such managerial actions, and provides that all employees not falling within the definition are considered rank-and-file. Applied to determine whether petitioner, notwithstanding his title of assistant vice-president, was a managerial employee; the bank failed to present substantial proof bringing him within the definition.
• Policy Instructions No. 8 (effective April 23, 1976) — Issued by the then Secretary of Labor; identifies managerial employees as those (1) who have the power to lay down management policies; (2) who have the power to hire, fire, demote, promote, and the like; and (3) who have the power to recommend effectively the first two. Cited both as the standard for managerial status and as the basis for the rule that even managerial employees may be dismissed for lack of confidence only upon substantiated and clearly proven loss of trust.
• Article V, Section 2 and Article VI, Section 5, Amended By-Laws of the Bank — Relied upon by respondent to establish petitioner's managerial status. The Court found these provisions insufficient, since they merely authorized the board of directors to appoint vice-presidents and/or assistant vice-presidents and provided that such officers shall perform such powers and duties as the board may prescribe.
• Constitutional Mandate of Security of Tenure — Invoked in holding that the compulsory courtesy resignation scheme unduly exposed employees to outright termination of employment, which is anathema to that mandate.
• Labor Code Provisions on Termination of Employment — The Court held that to clothe the dismissal with legality on the basis of petitioner's failure to submit his letter of courtesy resignation would be to add a ground for termination of employment to the provisions of the Labor Code.

Gutierrez, Jr., Bidin, and Cortes, JJ., concur. Feliciano, J., is on leave.