Intec Cebu Inc. vs. Court of Appeals

A unilateral and arbitrary reduction of work days that significantly reduces employees' salaries, without proof of genuine business losses or legitimate business necessity, constitutes constructive dismissal, and the employer's simultaneous hiring of replacement workers performing the same tasks further negates any claim of good faith.

Intec Cebu Inc. is a corporation engaged in the manufacture and assembly of mechanical systems and printed circuit boards for cassette tape recorders, CD, and CD ROM players. The individual respondents were hired by Intec in 1997 and 1998 as production workers. Intec was originally established to supply materials to Kenwood Precision Corporation, and when Kenwood ceased its Philippine operations, Intec set up a new product line exclusively for Pentax Cebu Phils. Corporation. The individual petitioners Akihiro Kambayashi and Wataru Sato were officers of Intec held jointly and severally liable with the corporation.

Intec Cebu Inc. is a corporation engaged in the manufacture and assembly of mechanical systems and printed circuit boards for cassette tape recorders, CD, and CD ROM players. The respondents, numbering thirty-seven, were hired by Intec in 1997 and 1998 as production workers. Intec was originally established to supply materials to Kenwood Precision Corporation, and when Kenwood ceased its Philippine operations, Intec's business was severely affected, prompting it to set up a new product line exclusively for Pentax Cebu Phils. Corporation.

In 2005, the respondents' working days were reduced from six to two to four days per week. Intec explained that the reduction was due to a lack of job orders. The respondents, however, discovered that Intec had hired approximately 188 contractual employees who were tasked to perform the same work the respondents had been regularly doing. On May 17, 2006, the respondents claimed they were effectively terminated, as evidenced by an Establishment Termination Report submitted to the Department of Labor and Employment. Two days later, they filed a complaint for illegal dismissal.

Intec, for its part, claimed that in December 2005, its job orders from Pentax declined. On January 4, 2006, a memorandum was issued informing employees that working days would be reduced to three to four days from the normal six-day work week. The reduced work week policy was extended from April to June 2006, with a corresponding memorandum issued and a copy submitted to the DOLE. The first memorandum was submitted to the DOLE on January 9, 2006, five days after the reduction was implemented. There was no evidence of a second notice informing employees of the extension of the reduced work days to June 2006.

Intec presented its audited financial statements for the years 2001 to 2006 to prove business losses. The statements showed a net loss of ₱9,708,820.00 in 2001, ₱5,928,636.00 in 2002, net income of ₱4,669,180.00 in 2003, ₱4,726,326.00 in 2004, a net loss of ₱9,240,929.00 in 2005, and net income of ₱9,568,674.00 in 2006. The 2005 loss was attributable in part to the acquisition of property and equipment amounting to ₱9,218,967.00. The financial statement for 2006 covered the period May 2005 to April 2006, and the reduced work day scheme was implemented only in January 2006—the ninth month of that fiscal year. Intec also submitted a two-page delivery data report to prove a slump in demand, but the report lacked a preparation date, was prepared by Intec employees and approved by its president, and appeared to be mere projections unsupported by sales or delivery receipts. Intec maintained that the 188 workers hired from TESDA and the Sisters of Mary were on-the-job trainees already employed prior to the reduced work days policy, and were retained to comply with urgent job orders from Pentax that regular employees could not accomplish. Intec also claimed the respondents voluntarily resigned or abandoned their work when they filed applications for leave following the second memorandum and declared they would no longer report for work.

The Labor Arbiter found that Intec hired casual employees to replace the respondents and declared them constructively dismissed. The NLRC reversed, finding that Intec suffered tremendous financial losses justifying the reduction. The Court of Appeals reversed the NLRC and reinstated the Labor Arbiter's decision.

• Grave Abuse of Discretion by the Court of Appeals: Petitioner argued that the Court of Appeals committed grave abuse of discretion by overturning its own resolution dismissing the respondents' petition outright and giving due course to their motion for reconsideration with a manifest advance pronouncement that it would be granted.
• Disregard of NLRC Factual Findings: Petitioner contended that the Court of Appeals disregarded the NLRC's factual findings that the respondents were not dismissed either actually or constructively.
• Financial Statements Improperly Disregarded: Petitioner asserted that the Court of Appeals capriciously disregarded Intec's financial statements as self-serving and of doubtful veracity for not having been prepared by an independent auditor, which assertion allegedly assaulted the integrity and honesty of the auditor.
• Circumvention of Certiorari Doctrine: Petitioner argued that the Court of Appeals circumvented the doctrine limiting judicial review of NLRC decisions via certiorari under Rule 65 to issues of jurisdiction and grave abuse of discretion, barring inquiry into the correctness of the evaluation of evidence.
• Erroneous Computation of Benefits: Petitioner contended that, assuming respondents were entitled to separation pay and backwages, the computation of benefits contained glaring and serious errors.
• Justification for Reduced Work Days: Petitioner maintained that the reduction of working days was undertaken to forestall business losses, as proven by audited financial statements for 2001 to 2006, and that the workers from TESDA and the Sisters of Mary were on-the-job trainees retained to comply with urgent job orders.
• Abandonment: Petitioner reiterated that respondents voluntarily resigned or abandoned their work when they filed applications for leave and categorically declared they would no longer report for work.

• Constructive Dismissal: Respondents urged affirmance of the Labor Arbiter's and the Court of Appeals' findings that they were constructively dismissed.
• No Genuine Business Losses: Respondents refuted Intec's claim of business reverses, pointing out that the company hired approximately 188 additional workers from TESDA and the Sisters of Mary despite the respondents being under reduced work days, which was inconsistent with a claim of financial distress.

• Validity of Reduced Work Days: Whether Intec's unilateral reduction of work days was a valid exercise of management prerogative justified by business losses.
• Constructive Dismissal: Whether the reduction of work days constituted constructive dismissal of the respondents.
• Abandonment: Whether the respondents abandoned their employment.
• Propriety of Certiorari: Whether the petition for certiorari under Rule 65 was the proper mode of appeal.

• Validity of Reduced Work Days: No. The reduction was invalid, Intec having failed to prove genuine business losses or a legitimate business necessity; the financial statements showed net income in 2006, and the 2005 loss was attributable to property acquisition rather than operational decline.
• Constructive Dismissal: Yes. The unilateral and arbitrary reduction of work days significantly reduced the respondents' salaries, rendering continued employment unreasonable and unlikely, which constitutes constructive dismissal.
• Abandonment: No. The filing of a complaint for illegal dismissal is incompatible with abandonment and is proof of the employee's desire to return to work.
• Propriety of Certiorari: No. A petition for certiorari under Rule 65 was improper because an appeal under Rule 45 was plainly available to Intec; certiorari will not issue where the remedy of appeal is available.

• Validity of Reduced Work Days: Management is free to regulate all aspects of employment, including work assignments, working methods, time, and lay-off of workers, but this prerogative is not absolute and must be exercised in good faith and with due regard to the rights of labor. The burden was on Intec to prove that the reduction of work days was valid and done in good faith. Intec claimed it implemented the scheme to forestall losses, but its financial statements for 2005 to 2006 showed that while it suffered a net loss of ₱9,240,929.00 in 2005, it earned a net income of ₱9,568,674.00 in 2006. The 2006 financial statement covered May 2005 to April 2006, and the reduced work day scheme was implemented only in January 2006—the ninth month of that fiscal year. Absent evidence that the 2006 income was earned only between January and April, it was safe to presume that at the time the scheme was being implemented, the company was still benefiting from its gains. The 2005 loss was attributable to the acquisition of property and equipment amounting to ₱9,218,967.00, and nothing in the financial statements indicated that a reduction in demand would necessitate a reduction in work days. The two-page delivery data report relied upon to prove a slump in demand lacked specifics, bore no preparation date, was prepared by Intec employees and approved by its president, and appeared to be mere projections unsupported by sales or delivery receipts. Moreover, the hiring of 188 workers necessarily incurred cost to the company, and no proof was submitted that these newly hired employees were performing work different from that of the regular workers. There was thus no reason to implement a cost-cutting measure in the form of reducing employees' working days.

• Constructive Dismissal: Constructive dismissal occurs when there is cessation of work because continued employment is rendered impossible, unreasonable, or unlikely; when there is a demotion in rank or diminution in pay or both; or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employee. Intec's unilateral and arbitrary reduction of the work day scheme had significantly reduced the respondents' salaries, thereby rendering Intec liable for constructive dismissal.

• Abandonment: To constitute abandonment, there must be clear proof of a deliberate and unjustified intent to sever the employer-employee relationship. The filing of a complaint for illegal dismissal is inconsistent with abandonment of employment; an employee who takes steps to protest his dismissal cannot logically be said to have abandoned his work. The filing of such a complaint is proof enough of the employee's desire to return to work, thus negating any suggestion of abandonment. The Court affirmed the Court of Appeals' finding that there was no proof that the respondents committed unauthorized absences or had otherwise refused to work.

• Propriety of Certiorari: For certiorari to prosper, the writ must be directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions; such tribunal must have acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and there must be no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. A petition for certiorari against a court with jurisdiction will prosper only if grave abuse of discretion is manifested—defined as a capricious and whimsical exercise of judgment so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law. A writ of certiorari will not issue where the remedy of appeal is available. In this case, appeal under Rule 45 was clearly available to Intec, and no grave abuse of discretion was shown on the part of the Court of Appeals.

• Management Prerogative — Management is free to regulate, according to its own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time, place, and manner of work, processes to be followed, supervision of workers, working regulations, transfer of employees, work supervision, lay-off of workers, and discipline, dismissal, and recall of workers. The exercise of management prerogative, however, is not absolute; it must be exercised in good faith and with due regard to the rights of labor. In this case, Intec's reduction of work days was not exercised in good faith because it failed to prove genuine business losses and simultaneously hired 188 new workers to perform the same tasks as the regular employees.

• Constructive Dismissal — Constructive dismissal occurs when there is cessation of work because continued employment is rendered impossible, unreasonable, or unlikely; when there is a demotion in rank or diminution in pay or both; or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employee. The Court applied this doctrine to hold that Intec's unilateral and arbitrary reduction of work days, which significantly reduced the respondents' salaries, constituted constructive dismissal.

• Abandonment and Filing of Illegal Dismissal Complaint — To constitute abandonment, there must be clear proof of a deliberate and unjustified intent to sever the employer-employee relationship. The filing of a complaint for illegal dismissal is inconsistent with abandonment and is proof of the employee's desire to return to work, thus negating any suggestion of abandonment. The Court applied this doctrine to reject Intec's charge of abandonment.

• Requisites of Certiorari under Rule 65 — For certiorari to prosper, three requisites must concur: (1) the writ is directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) such tribunal has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Grave abuse of discretion is defined as a capricious and whimsical exercise of judgment so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law. A writ of certiorari will not issue where the remedy of appeal is available. The Court applied this doctrine to dismiss the petition, finding that Rule 45 appeal was available and no grave abuse of discretion was shown.

• "The exercise of management prerogative, however, is not absolute as it must be exercised in good faith and with due regard to the rights of labor." — This passage defines the boundary of management prerogative and was the foundational principle for holding Intec's reduction of work days invalid.

• "Intec's unilateral and arbitrary reduction of the work day scheme had significantly greatly reduced respondents' salaries thereby rendering it liable for constructive dismissal." — This is the operative conclusion applying the constructive dismissal doctrine to the facts, linking the arbitrary wage reduction to liability.

• "The filing of a complaint for illegal dismissal is incompatible to abandonment." — This passage states the canonical rule that filing an illegal dismissal complaint negates abandonment, a doctrine frequently cited in subsequent labor jurisprudence.

• "A writ of certiorari will not issue where the remedy of appeal is available to the aggrieved party." — This passage articulates the principle that certiorari under Rule 65 is not a substitute for a lost appeal, which was the procedural ground for dismissing the petition.

• Royal Plant Workers Union vs. Coca-Cola Bottlers Philippines — Cebu Plant, 709 Phil. 350 (2013) — Cited for the doctrine that management prerogative is not absolute and must be exercised in good faith and with due regard to the rights of labor. Followed as controlling authority.

• Mcmer Corporation, Inc. vs. National Labor Relations Commission, G.R. No. 193421, June 4, 2014, 725 SCRA 1 — Cited for the definition of constructive dismissal. Followed as controlling authority.

• MZR Industries vs. Colambot, 716 Phil. 617 (2013) — Cited for the doctrine that the filing of a complaint for illegal dismissal is inconsistent with abandonment. Followed as controlling authority.

• Spouses Dacudao vs. Secretary Gonzales, 701 Phil. 96 (2013) — Cited for the requisites of certiorari under Rule 65. Followed as controlling authority.

• Tan vs. Spouse Antazo, 659 Phil. 400 (2011) — Cited for the definition of grave abuse of discretion. Followed as controlling authority.

• Cathay Pacific Steel Corp. vs. Court of Appeals, 531 Phil. 620 (2006) — Cited for the rule that a writ of certiorari will not issue where the remedy of appeal is available. Followed as controlling authority.

• Rule 65, Rules of Court — Governs the petition for certiorari. The Court held that the petition was filed under the wrong mode because the requisites for certiorari were not satisfied—specifically, an appeal under Rule 45 was available to Intec, and no grave abuse of discretion amounting to lack or excess of jurisdiction was shown on the part of the Court of Appeals.

• Rule 45, Rules of Court — Governs appeals by certiorari from the Court of Appeals to the Supreme Court. The Court noted that this was the proper and available remedy for Intec, rendering its Rule 65 petition improper.

• Article 283, Labor Code — Governs retrenchment and requires employer notification to DOLE at least one month prior to the intended date of retrenchment. The Court referenced this provision's reportorial requirement as a benchmark, noting that in 2006 there was no specific rule covering reduction of work days, but that even under the retrenchment standard, Intec submitted its report to DOLE only after the reduction was implemented.

• DOLE Department Advisory No. 2, Series of 2009 — Issued in January 2009, requires employers to notify DOLE of the reduction of work days prior to implementation. The Court noted this advisory was not yet in effect at the time Intec implemented the reduction in January 2006.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Bienvenido L. Reyes, and Francis H. Jardeleza concurred.