Lynvil Fishing Enterprises, Inc. vs. Ariola

An employee dismissed for just cause is not entitled to backwages and separation pay, but nominal damages are nonetheless awarded when the employer fails to comply with the procedural due process requirement of the two-notice rule.

Lynvil Fishing Enterprises, Inc. is a deep-sea fishing company operating along the shores of Palawan and other outlying islands of the Philippines, managed by Rosendo S. De Borja. The respondents were crew members of the company vessel Analyn VIII, holding positions ranging from captain to bodegero, and were engaged on a "por viaje" (per trip) basis. The dispute centers on whether their dismissal for alleged qualified theft constituted just cause, whether the "por viaje" arrangement rendered them contractual rather than regular employees, and whether the employer observed procedural due process in effecting termination.

Lynvil Fishing Enterprises, Inc. is a company engaged in deep-sea fishing, operating along the shores of Palawan and other outlying islands of the Philippines, managed by Rosendo S. De Borja. The respondents — Andres G. Ariola (captain), Jessie D. Alcovendas (Chief Mate), Jimmy B. Calinao (Chief Engineer), Ismael G. Nubla (cook), Elorde Bañez (oiler), and Leopoldo D. Sebullen (bodegero) — were crew members of the company vessel Analyn VIII, engaged on a "por viaje" basis, meaning their employment terminated at the end of each trip. Ariola, Alcovendas, and Calinao were managerial field personnel while the rest were field personnel.

On July 31, 1998, Lynvil received a report from employee Romanito Clarido that while on board Analyn VIII, the above-named crew members conspired to steal eight tubs of pampano and tangigue fish and delivered them to another vessel. By reason of this report and after initial investigation, De Borja summoned the respondents to explain within five days why they should not be dismissed. Only Alcovendas and Bañez received and signed the notice; the others either refused to sign or claimed no notice was given. Failing to explain as required, the respondents' employment was terminated. Lynvil also filed a criminal complaint against the dismissed employees for violation of P.D. 532 before the Office of the City Prosecutor of Malabon City. On November 12, 1998, First Assistant City Prosecutor Rosauro Silverio found probable cause for indictment for qualified theft under the Revised Penal Code.

The respondents' version differed. They stated that on July 31, 1998, they arrived at Navotas Fishport on board Analyn VIII loaded with 1,241 bañeras of different kinds of fish, which were delivered to consignees named SAS and Royale. The following day, they reported to the Lynvil office for new assignments but were told to wait. On August 5, 1998, only Alcovendas and Bañez received a memorandum from De Borja; when Ariola, Calinao, Nubla, and Sebullen went to the office upon learning of this, they were told their employment was already terminated. The employees also alleged that the theft accusation stemmed from their oral demand for salary increases three months earlier and their request not to be required to sign blank payroll and vouchers.

On August 25, 1998, the employees filed a complaint for illegal dismissal with the NLRC Arbitration Branch, claiming backwages, salary differential, reinstatement, service incentive leave, holiday pay, 13th month pay, moral and exemplary damages, and attorney's fees. The Labor Arbiter found the dismissal illegal, noting the absence of evidence proving the fish were actually missing and disregarding the prosecutor's finding of probable cause. The NLRC reversed, dismissing the complaints but imposing administrative fines. The Court of Appeals reinstated the Labor Arbiter's decision except the attorney's fees award, holding that the allegation of theft did not warrant dismissal and that the employees were regular employees entitled to procedural due process under the two-notice rule. The conflicting factual findings of the Labor Arbiter and the NLRC provided the basis for judicial review.

• Criminal Case as Basis for Termination: Petitioner argued that the filing of a criminal case before the prosecutor's office constitutes sufficient basis for valid termination on grounds of serious misconduct and/or loss of trust and confidence, relying on the doctrine in Nasipit Lumber Company vs. NLRC.
• Substantial Evidence: Petitioner contended that the termination of respondents' employment was supported by substantial evidence.
• Contractual Employment: Petitioner maintained that respondents were contractual employees on a per voyage basis, whose employment terminated after the end of each voyage, citing Brent School, Inc. vs. Zamora.
• Procedural Due Process: Petitioner asserted that respondents were accorded procedural due process in their dismissal.
• Money Claims: Petitioner argued that respondents were not entitled to the payment of their money claims.
• Liability of De Borja: Petitioner argued that De Borja is not jointly and severally liable with Lynvil because there was no finding of bad faith on his part.

• Regular Employment: Respondents contended that they became regular employees by reason of their continuous hiring and performance of tasks necessary and desirable in the usual trade and business of Lynvil.
• Bad Faith Accusation: Respondents maintained that the unwarranted accusation of theft stemmed from their oral demand for salary increases three months earlier and their request that they not be required to sign blank payroll and vouchers.

• Prosecutor's Finding as Binding: Whether the finding of probable cause by the prosecutor is binding on labor tribunals as sufficient basis for termination of employment.
• Just Cause for Dismissal: Whether the termination of respondents' employment was supported by substantial evidence.
• Nature of Employment: Whether respondents were contractual employees on a per voyage basis or regular employees under Article 280 of the Labor Code.
• Procedural Due Process: Whether respondents were accorded procedural due process in their dismissal.
• Money Claims: Whether respondents are entitled to the payment of their money claims.
• Joint Liability of De Borja: Whether De Borja is jointly and severally liable with Lynvil for the judgment.

• Prosecutor's Finding as Binding: No. The prosecutor's finding of probable cause does not bind labor tribunals; whichever way the public prosecutor disposes of a complaint, the finding does not bind the labor tribunal, as the proof required for each forum differs.
• Just Cause for Dismissal: Yes. Substantial evidence established breach of trust through the positive and clear narration of three witnesses to the commission of qualified theft on board the vessel.
• Nature of Employment: Regular employees. The "por viaje" arrangement was designed to circumvent security of tenure, as respondents performed tasks necessary to the business and were continuously rehired for over ten years, satisfying Article 280's requisites for regular employment.
• Procedural Due Process: No. Only one written notice was given; no final written notice of termination was sent to the employees, violating the mandatory two-notice rule.
• Money Claims: Partially. Backwages and separation pay were denied due to just cause, but 13th month pay and salary differential were affirmed, plus ₱50,000 nominal damages for non-compliance with statutory due process.
• Joint Liability of De Borja: No. Absent evidence of bad faith on De Borja's part, he is not solidarily liable with Lynvil for the judgment.

• Prosecutor's Finding as Binding: While Nasipit Lumber Company vs. NLRC held that proof beyond reasonable doubt is not required for loss of confidence dismissals and that a prosecutor's dismissal of charges is not binding on labor tribunals, the converse is equally true: a finding of probable cause by the prosecutor does not automatically bind labor tribunals either. The proof required for criminal prosecution differs from that required in labor proceedings. Thus, Lynvil could not rely solely on the prosecutor's finding of probable cause to validate the termination. Nonetheless, independent of the prosecutor's finding, the Court found substantial evidence supporting the dismissal.

• Just Cause for Dismissal: The employer bears the burden of proving valid or authorized cause for termination. Under Article 282 of the Labor Code, an employer may terminate employment for fraud or willful breach of trust. Such breach is willful if done intentionally, knowingly, and purposely, without justifiable excuse. Loss of confidence must be based on substantial evidence and not on the employer's whims, and the employee must hold a position of trust and confidence. The Court found breach of trust present, crediting the positive narration of three witnesses — Jonathan Distajo, Romanito Clarido, and Elorde Bañez — who testified to the coordinated taking of tubs of fish from the vessel's stockroom and transfer to a small boat, with Ariola serving as lookout and negotiator. Bañez, himself a dismissed employee and participant in the theft, corroborated the account in his affidavit, stating that the four tubs taken contained fish from the eight tubs and that Ariola instructed everyone to file a labor case instead of reporting the incident.

• Nature of Employment: Article 280 of the Labor Code provides that employment is regular where the employee performs activities usually necessary or desirable in the employer's business, regardless of oral or written agreements to the contrary. Jurisprudence laid down two conditions for the validity of fixed-term contracts: (1) the fixed period was knowingly and voluntarily agreed upon without force, duress, or improper pressure; or (2) the parties dealt on more or less equal terms with no moral dominance. While the "por viaje" contract provision textually stated a fixed period, the factual context — respondents performing tasks necessary to the fishing business, being rehired after each trip with new contracts, and the arrangement continuing for more than ten years — revealed the clear intention to circumvent security of tenure. The second paragraph of Article 280 further provides that any employee rendering at least one year of service, whether continuous or broken, is a regular employee. The circumstances indicated that the need for a continued source of income forced the employees' acceptance of the "por viaje" provision.

• Procedural Due Process: Section 2, Rule XXIII, Book V of the Rules Implementing the Labor Code requires two written notices: (1) a notice specifying the grounds for termination and giving the employee reasonable opportunity to explain; and (2) a notice of termination indicating that grounds have been established to justify termination. From the records, only one written notice was given, requiring respondents to explain within five days. No final written notice of termination was sent to the employees. The second notice, as indispensable as the first, ensures observance of due process. Pursuant to Culili vs. Eastern Communication Philippines, Inc., nominal damages of ₱50,000 were awarded for the employer's failure to follow the two-notice rule, despite the dismissal being for just cause.

• Money Claims: Because the dismissal was for just cause, backwages and separation pay could not be granted. However, following the findings of the Labor Arbiter as affirmed by the Court of Appeals, 13th month pay and salary differential were granted. The ₱50,000 nominal damages were awarded for non-compliance with procedural due process.

• Joint Liability of De Borja: Corporate directors and officers are solidarily liable with the corporation for termination of employment done with malice or bad faith. Bad faith contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest or ulterior purpose. The Court agreed with the NLRC and the Court of Appeals that no evidence on record indicated bad faith on the part of De Borja. While he was the general manager tasked with supervision, there was no proof that he imposed the "por viaje" provision for the purpose of effecting summary dismissal.

• Loss of Confidence as Just Cause — Loss of confidence as a ground for dismissal requires that the employee holds a position of trust and confidence or is entrusted with care and protection of the employer's property. The act complained of must be work-related and show the employee is unfit to continue working. It must be based on substantial evidence, not on the employer's whims, caprices, or suspicions. The Court applied this doctrine by finding that the respondents, as crew members entrusted with the vessel's cargo, committed breach of trust through the coordinated theft of fish, supported by the positive testimony of three witnesses.

• Independence of Labor Tribunals from Prosecutorial Findings — A criminal conviction is not necessary to find just cause for employment termination, and conversely, a finding of probable cause by the prosecutor does not bind labor tribunals. Whichever way the public prosecutor disposes of a complaint, the finding does not bind the labor tribunal, as the proof required differs between forums. The Court applied this by rejecting Lynvil's argument that the prosecutor's finding of probable cause should automatically validate the termination.

• Two-Notice Rule in Termination — The employer must furnish the employee with two written notices: (1) a notice specifying the ground or grounds for termination and giving the employee reasonable opportunity to explain; and (2) a notice of termination indicating that grounds have been established to justify termination. The Court found that only the first notice was given and no final written notice of termination was sent, warranting the award of nominal damages despite the existence of just cause.

• Regular Employment Despite Fixed-Term Arrangement — Under Article 280 of the Labor Code, employment is regular where the employee performs activities usually necessary or desirable in the employer's business, regardless of written or oral agreements to the contrary. A fixed-term contract is valid only if (1) the fixed period was knowingly and voluntarily agreed upon without force, duress, or improper pressure; or (2) the parties dealt on more or less equal terms with no moral dominance. The Court held that the "por viaje" arrangement, applied to employees continuously rehired for over ten years to perform tasks necessary to the fishing business, was designed to circumvent security of tenure and did not negate regular employment status.

• Nominal Damages for Procedural Lapse Despite Just Cause — When an employee is dismissed for just cause but the employer fails to comply with the procedural due process requirement of the two-notice rule, nominal damages are awarded. Pursuant to Culili vs. Eastern Communication Philippines, Inc., the Court awarded ₱50,000 as nominal damages, even as backwages and separation pay were denied.

• Solidary Liability of Corporate Officers — Corporate directors and officers are solidarily liable with the corporation for termination of employment done with malice or bad faith. Bad faith contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest or ulterior purpose. The Court found no evidence of bad faith on De Borja's part and thus declined to hold him solidarily liable.

• "In other words, whichever way the public prosecutor disposes of a complaint, the finding does not bind the labor tribunal." — This passage articulates the principle that prosecutorial findings, whether of probable cause or dismissal, are not binding on labor tribunals, establishing the independence of labor proceedings from criminal proceedings.

• "Loss of confidence must not be indiscriminately used as a shield by the employer against a claim that the dismissal of an employee was arbitrary." — This formulation defines the boundaries of loss of confidence as a just cause for dismissal, requiring substantial evidence and a position of trust, preventing employers from using it as a pretext for arbitrary termination.

• "The same set of circumstances indicate clearly enough that it was the need for a continued source of income that forced the employees' acceptance of the 'por viaje' provision." — This passage explains why the fixed-term "por viaje" arrangement was invalid as applied to the respondents, identifying economic compulsion as vitiating consent and defeating the employer's claim of contractual employment.

• "Due to the failure of Lynvil to follow the procedural requirement of two-notice rule, nominal damages are due to respondents despite their dismissal for just cause." — This statement establishes the remedy for procedural due process violations even when just cause exists, awarding nominal damages without reinstating backwages or separation pay.

• Nasipit Lumber Company vs. NLRC, 257 Phil. 937 (1989) — Cited by petitioner for the proposition that a prosecutor's finding does not bind labor tribunals and that proof beyond reasonable doubt is not required for loss of confidence dismissals. The Court followed this doctrine but clarified that the converse also applies: a finding of probable cause likewise does not bind labor tribunals.

• Nicolas vs. National Labor Relations Commission, 327 Phil. 883 (1996) — Cited for the principle that a criminal conviction is not necessary to find just cause for employment termination, and that an acquittal in a criminal case does not preclude a finding of acts inimical to the employer's interests in a labor case.

• Brent School, Inc. vs. Zamora — Cited by petitioner for the validity of fixed-term employment contracts. The Court acknowledged the doctrine but distinguished it on the facts, finding that the "por viaje" arrangement was designed to circumvent security of tenure and that the parties did not deal on equal terms.

• Culili vs. Eastern Communication Philippines, Inc., G.R. No. 165381, 9 February 2011 — Cited as the fresh ruling establishing the award of ₱50,000 as nominal damages for an employer's failure to comply with the two-notice rule, even when dismissal is for just cause.

• MAM Realty Development Corporation vs. NLRC, G.R. No. 114787, 2 June 1995 — Cited for the principle that corporate directors and officers incur solidary liability with the corporation only when they act in bad faith or with gross negligence in directing corporate affairs.

• Air France vs. Carrascoso, G.R. No. L-21438, 28 September 1966 — Cited for the definition of bad faith as a state of mind affirmatively operating with furtive design or with some motive of self-interest or ulterior purpose.

• Article 280, Labor Code (Regular and Casual Employment) — Defines regular employment as engagement in activities usually necessary or desirable in the employer's business, regardless of contrary agreements. The second paragraph provides that any employee rendering at least one year of service, whether continuous or broken, is a regular employee. The Court applied this provision to hold that the respondents were regular employees despite the "por viaje" contract, because their tasks were necessary to the fishing business and they served for over ten years.

• Article 282, Labor Code (Termination by Employer) — Enumerates the just causes for termination, including fraud or willful breach of the trust reposed in the employee. The Court applied paragraph (c) to uphold the dismissal based on breach of trust, finding that the respondents willfully participated in the theft of fish entrusted to their care.

• Article 310, Revised Penal Code (Qualified Theft) — Defines qualified theft as theft committed with grave abuse of confidence, among other circumstances. The prosecutor found probable cause for qualified theft against the dismissed employees, though the Court held this finding was not binding on labor tribunals.

• Section 2, Rule XXIII, Book V, Rules Implementing the Labor Code — Requires the employer to furnish the employee with two written notices in termination proceedings: (1) a notice specifying the grounds and giving opportunity to explain; and (2) a notice of termination. The Court found that only the first notice was given, violating procedural due process and warranting nominal damages.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Maria Lourdes P. A. Sereno, and Bienvenido L. Reyes concurred in the decision.