Lopez Sugar Corporation vs. Federation of Free Workers, Philippine Labor Union Association (PLUA-NACUSIP) and National Labor Relations Commission

Retrenchment to prevent losses is valid only where the expected losses are substantial and not merely de minimis, reasonably imminent, and proved by sufficient and convincing evidence, and where the reduction of personnel is reasonably necessary and undertaken as a measure of last resort after less drastic cost-cutting measures have been tried and found wanting. Correspondingly, a collective bargaining agreement continues in full force and effect after the lapse of its formal term until a new agreement is reached by the parties, so that an employer may validly retire employees pursuant to its provisions notwithstanding the expiration of its stated effectivity.

Lopez Sugar Corporation, a sugar central, maintained a collective bargaining relationship with the Philippine Labor Union Association (PLUA-NACUSIP) under a 1975-1977 CBA, Article XI, Section 2 of which granted the company the right to retire any employee who had rendered twenty years of service or reached the age of sixty. The Federation of Free Workers appeared as the certified bargaining agent of the rank-and-file employees in the proceedings that followed. The dispute implicated Article 283 of the Labor Code, which authorizes termination of employment due to retrenchment to prevent losses, and Article 253, which governs the duty to bargain collectively and the continuity of an existing agreement.

Lopez Sugar Corporation operated a sugar central and maintained a collective bargaining relationship with the Philippine Labor Union Association (PLUA-NACUSIP), with which it had executed a collective bargaining agreement for 1975 to 1977. Article XI, Section 2 of that agreement provided that any employee might apply for retirement after rendering at least eighteen years of service, that the company as a right could retire any employee who had rendered twenty years of service or reached the age of sixty, and that employees physically incapacitated from continuing work, upon certification of the company physician, would be entitled to separation pay equivalent to the retirement benefits provided. The Federation of Free Workers appeared in the proceedings as the certified bargaining agent of the rank-and-file employees.

Invoking that CBA provision and asserting the need to prevent losses arising from major economic problems, the company undertook a reduction of its workforce. On January 3, 1980, it filed with the Bacolod District Office of the then Ministry of Labor and Employment a combined report on retirement and application for clearance to retrench, dated December 28, 1979, affecting eighty-six employees and docketed as NLRC Case No. A-217-80. Of these, fifty-nine were retired effective January 1, 1980 and twenty-eight were to be retrenched effective January 16, 1980 "in order to prevent losses." On the same day, the FFW filed a complaint dated December 27, 1979 for unfair labor practices and recovery of union dues, docketed as NLRC Case No. A-198-80, alleging that the terminations violated the security of tenure of its members and were intended to bust the union, and asserting that to justify retrenchment serious business reverses must be actual, real and amply supported by sufficient and convincing evidence. The FFW further claimed that after the termination of its members' services the company advised 110 casuals to report to its personnel office. The company denied having hired casuals to replace those retired or retrenched, explaining that the announcement was only for the purpose of organizing a pool of extra workers to be tapped whenever temporary vacancies arose by reason of leaves of absence of regular workers. On January 22, 1980, the company filed another report on retirement affecting an additional twenty-five employees effective February 1, 1980.

In its Position Paper filed on March 3, 1980 in NLRC Case No. A-217-80, the company contended that certain economic factors jeopardizing its very existence rendered the dismissals necessary. It explained that as a business firm it had to earn a fair return on its investment, that its income was generated from sales of the central's shares of sugar and molasses production, and that it had no control over the selling price of both products, which had been very low for the past years. It asserted that it had effected several forms of cost reduction in order to survive, and that it was again faced with two major economic problems: the stoppage of its railway operation, occasioned by the refusal of the owners of the land traversed by its railway lines to allow further use of portions of their lands, and the spiralling cost of production, including the rising cost of labor, materials, supplies and equipment. These two problems, it argued, posed a serious threat against its economic survival and constrained it to touch on the last phase of its cost reduction program, the reduction of its workforce.

The Labor Arbiter found no sufficient and convincing evidence to sustain the company's essential contention that it was acting to prevent substantial and serious losses. Even assuming that the company was surrounded by the major economic problems it had described, the Arbiter found no evidence that it would suffer serious losses as a consequence, noting that the company itself asserted only that these problems threatened its survival. The Arbiter also observed that while the company was retrenching its regular employees, it also hired the services of casuals, which militated against its claim of cost reduction. On the record before the Supreme Court, the company's submissions were that from crop year 1975-1976 to crop year 1980-1981 cane deliveries declined, mill capacity utilization and sugar recovery declined, competition among existing sugar mills for the limited supply of sugar cane was lively, approximately thirty-eight of its railroad lines had been closed by the end of 1979, and the cost of producing one picul of sugar rose from P69.97 to P93.11 between crop years 1976-1977 and 1979-1980. No audited financial statements showing the company's financial condition during those crop years were submitted, and the company failed to specify the cost-reduction measures it had actually undertaken before resorting to retrenchment.

• Validity of Retrenchment to Prevent Losses: Petitioner argued that under the law it had the right to reduce its workforce if made necessary by economic factors which would endanger its existence, and that for retrenchment to be valid it is not necessary that losses be actually sustained; the existence of valid grounds to anticipate or expect losses would be sufficient justification to enable the employer to take the necessary actions to prevent any threat to its survival.
• Grave Abuse of Discretion and Excess of Jurisdiction: Petitioner contended that the NLRC acted with grave abuse of discretion and in excess of jurisdiction in denying its combined report on retirement and application for clearance to retrench, and that portions of the NLRC decision were contrary to law and jurisprudence and in some respects not supported by evidence and self-contradictory.
• Extended Effectivity of the CBA: Petitioner argued that the 1975-1977 CBA was extended not merely by implication but by reciprocal acts, in the sense that even after the CBA had expired it continued to give, and the workers continued to receive, the benefits and exercise the prerogatives provided therein, so that under those circumstances the employees were estopped from denying the extended effectivity of the CBA.

• Substantial Evidence and Absence of Grave Abuse of Discretion: The Solicitor General argued that the decision rendered by the Labor Arbiter and affirmed by the NLRC is supported by substantial evidence on record, and that therefore no grave abuse of discretion was committed by the NLRC in rendering that decision.
• Union Busting and Security of Tenure: The FFW claimed that the terminations undertaken by petitioner were violative of the security of tenure of its members and were intended to bust the union, and hence constituted an unfair labor practice; it further claimed that after the termination of its members' services petitioner advised 110 casuals to report to its personnel office.
• Quantum of Proof for Retrenchment: The FFW argued that to justify retrenchment, serious business reverses must be actual, real and amply supported by sufficient and convincing evidence, and prayed for the reinstatement of its members who had been retired or retrenched.
• Coterminous Retirement Right: The Solicitor General, as well as private respondents, argued basically that petitioner's right to retire its employees was coterminous with the life of the CBA.

• Validity of Retrenchment to Prevent Losses: Whether petitioner's retrenchment of employees to prevent losses was valid, given that no actual losses had yet been sustained and the employer relied only on anticipated or expected losses.
• Validity of Retirement Under the Expired CBA: Whether petitioner could validly retire employees pursuant to Article XI, Section 2 of the 1975-1977 CBA notwithstanding that the agreement had expired on December 31, 1977, and whether the employees were estopped from denying its extended effectivity.
• Effect of Quitclaims: Whether employees who had signed quitclaims and received payments were barred from joining the complaint for the full measure of their legal rights.

• Validity of Retrenchment to Prevent Losses: No. Retrenchment to prevent losses requires that the expected losses be substantial and reasonably imminent, that the reduction be reasonably necessary and a measure of last resort, and that the losses be proved by sufficient and convincing evidence; petitioner failed to discharge that burden.
• Validity of Retirement Under the Expired CBA: Yes. Under Article 253 of the Labor Code, the CBA continued in force and effect as between the parties until a new agreement was reached, so petitioner acted within legal bounds in retiring employees in accordance with its provisions.
• Effect of Quitclaims: No. Quitclaims executed by laborers are contrary to public policy and ineffective to bar claims for the full measure of the worker's legal rights, although amounts actually received must be deducted from the backwages due.

• Validity of Retrenchment to Prevent Losses: The phrase "to prevent losses" in Article 283 of the Labor Code means, in its ordinary connotation, that retrenchment or termination of the services of some employees is authorized to be undertaken by the employer sometime before the losses anticipated are actually sustained or realized; it was not the intention of the lawmaker to compel the employer to stay his hand and keep all his employees until sometime after losses shall have in fact materialized. At the other end of the spectrum, not every asserted possibility of loss is sufficient legal warrant for reduction of personnel, since the possibility of incurring losses is constantly present in the carrying on of business operations and many factors affecting profitability lie substantially outside the employer's control. The Court sketched four general standards: first, the losses expected should be substantial and not merely de minimis in extent, for if the loss sought to be forestalled is clearly insubstantial and inconsequential, the bona fide nature of the retrenchment would be seriously in question; second, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer, there being a certain degree of urgency for a recourse so drastic to the livelihood of employees; third, the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses, the employer having taken other measures prior or parallel to retrenchment to forestall losses by cutting costs other than labor costs, so that an employer who lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called "golden parachutes" can scarcely claim to be retrenching in good faith, and the prerogative to bring down labor costs must be exercised essentially as a measure of last resort after less drastic means — reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs — have been tried and found wanting; and fourth, the alleged or already realized losses and the expected imminent losses sought to be forestalled must be proved by sufficient and convincing evidence, since any less exacting standard would render too easy the abuse of this ground for termination and the ground would be susceptible to abuse by scheming employers feigning business losses. Whether an employer would imminently suffer serious or substantial losses for economic reasons is essentially a question of fact for the Labor Arbiter and the NLRC to determine, and their factual findings, if supported by substantial evidence, are entitled not only to great respect but even to finality unless the petitioner shows that they arbitrarily disregarded evidence before them or misapprehended evidence of such a nature as to compel a contrary conclusion if properly appreciated. Here, no proof of actual declining gross and net revenues was submitted and no audited financial statements showing the corporation's financial condition during the relevant crop years were presented, even though financial statements audited by independent external auditors constitute the normal method of proof of a company's profit and loss performance. Petitioner likewise failed to specify the cost-reduction measures actually undertaken in good faith before resorting to retrenchment, and it appeared that after reducing its workforce it advised 110 casual workers to register as extra workers; both the Labor Arbiter and the NLRC declined to credit petitioner's explanation, and petitioner did not show that they were merely arbitrary and capricious in their evaluation, nor did it claim that the retrenched and retired employees were brought into the pool of extra workers rather than new casual workers. The attempted retrenchment was therefore legally ineffective.
• Validity of Retirement Under the Expired CBA: Although the CBA expired on December 31, 1977, it continued to have legal effects as between the parties until a new CBA had been negotiated and entered into, a proposition finding legal support in Article 253 of the Labor Code, which imposes on both parties the duty to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached. Despite the lapse of the formal effectivity of the CBA by virtue of its own provisions, the law considered the same as continuing in force and effect until a new CBA shall have been validly executed, and hence petitioner acted within legal bounds when it decided to retire several employees in accordance with the CBA. That the employees themselves similarly acted in accordance with the CBA was plain from the record: even after its expiration they continued to receive the benefits and enjoy the privileges granted therein, availing of vacation and sick leaves as computed under Articles VII and VIII, medical and dental aid under Article IX, death aid and bereavement leave under Articles X and XIV, insurance coverage under Article XVI and housing allowance under Article XVIII; seventeen employees even availed of Section XI on retirement when they voluntarily retired between January 1, 1978 and December 31, 1980 and received retirement pay computed on the basis of Section 3 of the same article. If the workers chose to avail of the CBA despite its expiration, equity — if not the law — dictated that the employer should likewise be able to invoke the CBA.
• Effect of Quitclaims: The fact that several workers signed quitclaims would not by itself bar them from joining the complaint. Quitclaims executed by laborers are commonly frowned upon as contrary to public policy and ineffective to bar claims for the full measure of the worker's legal rights. In labor jurisprudence it is well established that quitclaims and/or complete releases executed by employees do not estop them from pursuing their claims arising from the unfair labor practice of the employer, the basic reason being that such quitclaims and/or complete releases are against public policy and therefore null and void, and the acceptance of termination pay does not divest a laborer of the right to prosecute his employer for unfair labor practice acts. Acceptance of benefits does not amount to estoppel because employer and employee obviously do not stand on the same footing; the employer drove the employee to the wall, and the latter, out of a job, had to get hold of money and found himself in no position to resist money proffered, his being a case of adherence and not of choice. Renuntiatio non praesumitur. Accordingly, in the case of employees who had received payments for which they had executed quitclaims, the amount of such payments shall be deducted from the backwages due to them. Because the attempted retrenchment was legally ineffective, all retrenched employees should be reinstated and paid backwages corresponding to a period of three years without qualification or deduction, in accordance with the three-year rule laid down in a long line of cases; where reinstatement is no longer possible because the positions previously filled are no longer in existence, petitioner shall pay backwages plus, in lieu of reinstatement, separation pay in the amount of one month's pay for every year of service including the three-year period of putative service for which backwages will be paid.

• Retrenchment to Prevent Losses — Article 283 of the Labor Code authorizes termination of employment due to retrenchment to prevent losses, a ground that may be invoked before the anticipated losses are actually sustained. The Court laid down four standards governing its validity: (a) the losses expected must be substantial and not merely de minimis in extent; (b) the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer, there being a certain degree of urgency for so drastic a recourse; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses, the employer having taken other measures prior or parallel to retrenchment to forestall losses by cutting costs other than labor costs, so that the prerogative to reduce labor costs is exercised essentially as a measure of last resort; and (d) the alleged or realized losses and the expected imminent losses sought to be forestalled must be proved by sufficient and convincing evidence. In this case, the employer failed to submit audited financial statements, failed to specify the cost-reduction measures actually undertaken, and continued to engage casual workers, so the retrenchment was held legally ineffective.
• Continuation of a Collective Bargaining Agreement After Expiration — Under Article 253 of the Labor Code, it is the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached by the parties. The Court applied this rule to hold that despite the lapse of the formal effectivity of the 1975-1977 CBA, the agreement continued in force and effect until a new CBA was validly executed, so that the employer acted within legal bounds in retiring employees pursuant to Article XI, Section 2 thereof.
• Reciprocal Availment and Equity in Expired CBAs — Where employees continued after the CBA's expiration to receive its benefits and enjoy its privileges, and even availed of its retirement provisions, equity — if not the law — dictates that the employer should likewise be able to invoke the CBA. The Court relied on this principle to reject the argument that the employer's right to retire employees was coterminous with the life of the agreement.
• Quitclaims Executed by Laborers — Quitclaims and complete releases executed by employees are contrary to public policy and therefore null and void, and do not estop them from pursuing claims arising from the unfair labor practice of the employer; acceptance of termination pay does not divest a laborer of the right to prosecute his employer. The doctrine rests on the inequality of footing between employer and employee: the employer drives the employee to the wall, and the latter, out of a job, is in no position to resist money proffered, his being a case of adherence and not of choice. Hence, renuntiatio non praesumitur. In this case, the quitclaims did not bar the workers from joining the complaint, but the amounts received were ordered deducted from the backwages due.
• Three-Year Rule on Backwages — Backwages awarded to illegally dismissed employees are limited to three years without qualification or deduction, in accordance with a long line of cases. Where reinstatement is no longer possible because the positions previously held no longer exist, the employer pays backwages plus, in lieu of reinstatement, separation pay of one month's pay for every year of service, including the three-year period of putative service for which backwages are paid.
• Finality of Factual Findings of Labor Administrative Officials — The factual findings of labor administrative officials, if supported by substantial evidence, are entitled not only to great respect but even to finality, unless the petitioner shows that the Labor Arbiter and the NLRC simply and arbitrarily disregarded evidence before them or had misapprehended evidence of such a nature as to compel a contrary conclusion if properly appreciated. Whether an employer would imminently suffer serious or substantial losses for economic reasons is essentially a question of fact for the Labor Arbiter and the NLRC to determine.

• "In ts ordinary connotation, he phrase "to revent losses" means hat retrenchment or termination of the services of some employees is authorized to be undertaken by the employer sometime before the losses anticipated are actually sustained or realized. It is not, in other words, the intention of the lawmaker to compel the employer to stay his hand and keep all his employees until sometime after losses shall have in fact materialized; if such an intent were expressly written into the law, that law may well be vulnerable to constitutional attack as taking property from one man to give to another." — This passage construes the statutory phrase "to prevent losses" in Article 283 of the Labor Code and establishes that retrenchment may be resorted to before losses actually materialize, which is the doctrinal starting point of the Court's analysis.
• "Firstly, the losses expected should be substantial and not merely de minimis in extent. ... Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. ... Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. ... Lastly, but certainly not the least important, alleged if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence." — This is the canonical four-part test for valid retrenchment to prevent losses, the formulation most frequently invoked in subsequent labor jurisprudence.
• "It shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached by the parties." — Quoting Article 253 of the Labor Code, this passage supplies the statutory basis for the holding that the expired CBA continued in force and effect, thereby validating the retirements effected under its provisions.
• "In labor jurisprudence, it is well establish that quitclaims and/or complete releases executed by the employees do not estop them from pursuing their claims arising from the unfair labor practice of the employer. The basic reason for this is that such quitclaimants and/or complete releases are against public policy and, therefore, null and void. The acceptance of termination pay does not divest a laborer of the right to prosecute his employer for unfair labor practice acts." — Quoted from AFP Mutual Benefit Association, Inc. vs. AFP-MBAI-EU, this passage states the rule nullifying quitclaims executed by laborers and explains why the signing workers were not barred from joining the complaint.

• Indino vs. National Labor Relations Commission, G.R. No. 80352, September 29, 1989 — Cited as authority for the construction of the phrase "to prevent losses" as authorizing retrenchment before anticipated losses are actually sustained.
• Garcia vs. National Labor Relations Commission, 153 SCRA 639 (1987) — Cited for the requirement that the alleged losses in business operations must be proved, lest the ground for termination be abused by scheming employers feigning business losses.
• Camara Shoes vs. Kapisanan ng Manggagawa sa Camara Shoes, 173 SCRA 127 (1989) — Cited alongside Garcia as supporting the evidentiary requirement for retrenchment.
• Mamerto vs. Inciong, 118 SCRA 265 (1982) — Cited among the authorities holding that the factual findings of labor administrative officials supported by substantial evidence are entitled to great respect and even finality.
• Atlas Consolidated Mining and Development Corp. vs. National Labor Relations Commission, 167 SCRA 758 (1988) — Cited both for the finality of factual findings of labor officials and, in the context of the three-year rule, as authority on backwages.
• Reyes vs. Minister of Labor, 170 SCRA 134 (1989) — Cited for the rule on the conclusiveness of factual findings of labor administrative officials when supported by substantial evidence.
• Bristol Laboratories Employees Association-DFA vs. National Labor Relations Commission, G.R. No. 87974, July 2, 1990 — Cited for the same rule on the respect accorded to factual findings of labor officials.
• AFP Mutual Benefit Association, Inc. vs. AFP-MBAI-EU, 97 SCRA 715 (1980) — Quoted at length for the doctrine that quitclaims and complete releases executed by employees are against public policy and do not estop them from pursuing claims arising from the employer's unfair labor practice.
• Cariño vs. ACCFA, L-19808, September 29, 1966, 18 SCRA 183 — Quoted for the principle that acceptance of benefits does not amount to estoppel because employer and employee do not stand on the same footing, the employee's being a case of adherence and not of choice, and for the maxim renuntiatio non praesumitur.
• Philippine Sugar Institute vs. CIR, L-13475, September 29, 1960, 109 Phil. 452 and Mercury Drug Co. vs. CIR, L-23357, April 30, 1974, 56 SCRA 694 — Cited within the AFP Mutual quotation as supporting authorities on the nullity of quitclaims.
• Insular Life Assurance Co., Ltd. vs. National Labor Relations Commission, 135 SCRA 697 (1985); Lepanto Consolidated Mining Company vs. Encarnacion, 136 SCRA 256 (1985); Panay Railways, Inc. vs. NLRC, 137 SCRA 480 (1985) — Cited collectively as the long line of cases establishing the three-year rule on backwages.

• Article 283, Labor Code — Authorizes the employer to 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, upon serving written notice on the workers and the Ministry of Labor at least one month before the intended date, and fixes the separation pay for retrenchment to prevent losses and for closures not due to serious business losses or financial reverses at one month pay or at least one-half month pay for every year of service, whichever is higher. The provision supplied the statutory ground invoked by petitioner; the Court construed its phrase "to prevent losses" and, applying the four standards derived therefrom to the facts, found the retrenchment legally ineffective.
• Article 253, Labor Code — Provides that when there is a collective bargaining agreement, the duty to bargain collectively means that neither party shall terminate or modify the agreement during its lifetime, although either party may serve written notice to terminate or modify it at least sixty days prior to its expiration date, and that it shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached by the parties. This provision was the basis for upholding the validity of the retirements effected under the expired 1975-1977 CBA.
• Article XI, Section 2, 1975-1977 Collective Bargaining Agreement — Granted the company the right to retire any employee who had rendered twenty years of service or reached the age of sixty, and entitled physically incapacitated employees, upon certification of the company physician, to separation pay equivalent to the retirement benefits provided. The Court held that this provision remained operative notwithstanding the CBA's expiration, and that the retirements made pursuant thereto were valid.

Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ.