McConnell Dowell Phils., Inc. vs. Bernal

An employer bears the burden to prove the validity of a redundancy program by substantial evidence—specifically by submitting the new staffing pattern, feasibility studies or proposals on the viability of newly created positions, job descriptions, and management approval of the restructuring; financial statements showing losses and organizational charts showing remaining positions, without more, are insufficient. Separation pay in lieu of reinstatement, computed from the employee's first day of service until the finality of the decision, is distinct from and not extinguished by the separation pay paid upon termination for redundancy, which is computed only until the date of termination.

Archimedes B. Bernal, a resident of New Zealand, was hired by McConnell Dowell Phils., Inc. (MacDow), a Philippine construction company, as an Estimator on a casual basis on August 13, 2009, and was later promoted to Manager of Business Development. His principal task was to solicit new construction projects for MacDow—a function previously handled by the Country Manager. Beginning 2011, most of MacDow's major projects ended, causing revenues to drop by approximately 74%, which prompted MacDow to plan a streamlining of operations, realignment of business, and reduction of workforce.

Archimedes B. Bernal was hired by McConnell Dowell Phils., Inc. (MacDow) as an Estimator on a casual basis on August 13, 2009, and was thereafter promoted to Manager of Business Development. His principal task was to solicit new construction projects for MacDow—a function previously handled and performed by the Country Manager. During his tenure, Bernal received bonuses and commendations from Colin Jenner, the Country Manager and his immediate superior, including a bonus of NZD 5,500 for the financial year ending June 2010, a salary increase from NZD 88,500 to NZD 100,000 effective January 1, 2011, and a further NZD 5,000 increase in 2012. Bernal, being the only licensed engineer in MacDow, was appointed as the Sustaining Technical Employee and was required to attend the Construction and Safety & Health Course at the DOLE, which was indispensable for the renewal of MacDow's license to operate. He likewise played a key role in acquiring the Pililia Wind Farm Project, worth around USD 110 million, for MacDow.

In September 2011, Bernal learned from Jenner of the negative perception of certain Directors of MacDow Australia against him, supposedly because of his unsatisfactory performance. Upset, Bernal wrote an email dated September 26, 2011 to Jenner outlining his accomplishments and requesting a performance evaluation, but Jenner neither responded nor conducted the evaluation. In April 2012, three months after Bernal was awarded a salary increase, Jenner sent an email warning Bernal of his general dissatisfaction with Bernal's performance and stating that the email should be taken as Bernal's first written warning. After several further correspondences between Jenner and Bernal, most marked by rude and antagonistic language, Bernal filed a grievance notification dated June 25, 2012, in accordance with the MacDow Management System Procedure—Staff Complaints and Grievances.

Beginning 2011, most of MacDow's major projects ended, causing revenues to drop by approximately 74%. MacDow decided to streamline its operations, realign its business, and reduce its workforce. In view of these plans, MacDow offered Bernal the position of Project Manager for the Pililia Wind Farm Project and likewise offered him the opportunity to apply for a position in MacDow's Brisbane, Australia office. Bernal declined both offers. On June 29, 2012, several days after Bernal filed his grievance notification, MacDow's Accounting Manager texted Bernal to attend a meeting the next day, supposedly regarding the grievance. During the meeting on June 30, 2012, Bernal was instead handed a Notice of Termination Due to Redundancy, effective July 31, 2012, stating that after a thorough review of manpower requirements and reorganization of work assignments, certain positions had become redundant, and that in view of Bernal's declining to take another position, his services would be terminated. Bernal was paid separation pay, including airfare, and notices were sent to the DOLE. On July 12, 2012, Jenner sent Bernal a Memorandum addressing the grievance notification, stating that the redundancy was in no way associated with the grievance and that Bernal's performance was not a factor.

At the time of Bernal's termination, MacDow likewise abolished other positions and terminated other employees for redundancy, including Bruno Tirrizzi (Project Manager), Arnel Padilla (Senior Procurement Officer), Tess Casanova (Accounting Manager), and Maya Manzanas (newly hired replacement of the Accounting Manager). Bernal's tasks as Manager of Business Development were transferred and consolidated to the Country Manager—the position that had previously handled those functions. Because of the continued decline in MacDow's business, several other key employees were terminated, including Jenner himself. After the streamlining, only three major departments and managerial positions remained: Land Estimator, Office Manager, and Accounting Manager. The Labor Arbiter found the dismissal illegal, noting the absence of any work plan, Board Resolution, or reasonable criteria for the redundancy, and the proximity of the termination to Bernal's grievance filing. The NLRC reversed, finding that MacDow observed all requirements for a valid redundancy termination. The CA reversed the NLRC, finding MacDow's evidence insufficient to establish a valid redundancy program and awarding moral and exemplary damages, while deleting the reinstatement order on the ground of strained relations.

• Validity of Redundancy (MacDow): MacDow argued that it has sole discretion to determine its organization and manpower requirements in pursuit of its business, in accordance with its management prerogative. Given that the functions of the Manager of Business Development were already transferred to the Country Manager, Bernal's position became redundant. MacDow likewise alleged that since Bernal's position was managerial, it had wider discretion in determining whether the continuous existence of the position was still advantageous for the company, citing Almodiel vs. NLRC.
• Sufficiency of Evidence (MacDow): MacDow contended that its (1) financial statements showing losses; (2) documentations showing its reorganization; and (3) allegations of Bernal's poor performance, should have been accepted by the CA as proof of a valid redundancy program.
• Absence of Bad Faith (MacDow): MacDow argued that there was no malice or arbitrariness in Bernal's termination. As regards the grievance notification, MacDow and Jenner properly followed the procedure in resolving the issue, and the result of the grievance was unrelated to the termination, which was due to redundancy.
• Binding Effect of NLRC Findings (MacDow): MacDow maintained that the factual findings of the NLRC are binding upon the courts and should have been respected by the CA, considering that the same were supported by substantial evidence.
• Entitlement to Separation Pay in Lieu of Reinstatement (Bernal): Bernal argued that the separation pay he received from MacDow in 2012 was given because of his dismissal—computed at one month's salary for every year of service from the start of employment until termination. Such separation pay is different from the separation pay to be awarded in lieu of reinstatement, which should be computed at one month salary for every year of service until the finality of the decision in the illegal dismissal case. The amount already received would simply be deducted from the awarded separation pay during execution proceedings.

• Insufficiency of Redundancy Evidence (Bernal, as respondent in G.R. No. 224685): Bernal countered that the NLRC committed grave abuse of discretion in ruling that the dismissal was based on the authorized cause of redundancy despite utter lack of evidence to show the existence of any redundancy program. He argued that MacDow failed to use fair and reasonable criteria in determining which positions to abolish and that the NLRC disregarded evidence of bad faith on the part of the respondents.
• Entitlement to Damages (Bernal, as respondent in G.R. No. 224685): Bernal maintained that the NLRC committed grave abuse of discretion in failing to award moral and exemplary damages despite clear evidence of bad faith.
• Opposition to Bernal's Claim for Separation Pay (MacDow, as respondent in G.R. No. 224692): MacDow argued that Bernal was already paid separation pay when his employment was terminated in 2012 and was therefore no longer entitled to additional separation pay in lieu of reinstatement.

• Validity of Redundancy Program: Whether Bernal's separation from MacDow was due to a valid redundancy program, specifically whether MacDow proved by substantial evidence the good faith in abolishing the redundant positions and the use of fair and reasonable criteria in ascertaining which positions to declare redundant.
• Separation Pay in Lieu of Reinstatement: Whether Bernal is entitled to separation pay in lieu of reinstatement, and whether such separation pay is distinct from the separation pay he already received upon termination in 2012.
• Moral and Exemplary Damages: Whether the award of moral and exemplary damages is proper in this case.

• Validity of Redundancy Program: No. MacDow failed to prove by substantial evidence that a valid redundancy program was implemented, having submitted only financial statements and organizational charts without feasibility studies, job descriptions, or management approval of restructuring.
• Separation Pay in Lieu of Reinstatement: Yes. Bernal is entitled to separation pay in lieu of reinstatement, equivalent to one month salary for every year of service until the finality of the decision, less the separation pay already received in 2012. Separation pay in lieu of reinstatement is distinct from separation pay due to redundancy under Article 298 of the Labor Code.
• Moral and Exemplary Damages: No. The award was deleted because Bernal's termination, though contrary to law, was not carried out in an arbitrary, capricious, or malicious manner.

• Validity of Redundancy Program: The burden to prove a valid redundancy program rests on the employer. While redundancy is a recognized authorized cause under Article 298 of the Labor Code, the employer must comply with four requisites laid down in Asian Alcohol Corporation vs. NLRC: (1) written notice to both the employee and the DOLE at least one month prior to the intended date; (2) payment of separation pay; (3) good faith in abolishing the redundant positions; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant. The first two requisites were undisputedly complied with. As to the third and fourth, MacDow's documentary evidence—financial statements showing revenue decline and organizational charts showing remaining positions—was inadequate. Financial losses alone cannot justify termination due to redundancy, nor show that fair and reasonable criteria were used, as held in Feati University vs. Pangan. The organizational charts merely showed which positions remained without explaining why others were abolished. MacDow's bare assertion that Bernal's functions were transferred to the Country Manager was unsubstantiated by the Notice of Termination, which contained no explanation detailing how the position was no longer necessary. The allegation of poor performance was contradicted by Jenner's own commendations and Bernal's role in securing the Pililia Wind Farm Project, and was expressly disclaimed in Jenner's memorandum addressing the grievance. No feasibility studies, job descriptions, or Board Resolution approving the restructuring were submitted.

• Separation Pay in Lieu of Reinstatement: As an illegally dismissed employee, Bernal is entitled to full backwages from the time of illegal dismissal. Reinstatement is no longer possible because of strained relations and because the position no longer exists. In such instances, separation pay in lieu of reinstatement is proper under Section 4(b), Rule I of the Rules Implementing Book VI of the Labor Code. The CA erred in ruling that Bernal was no longer entitled to separation pay in lieu of reinstatement simply because he already received separation pay upon termination. The two are distinct: separation pay due to redundancy under Article 298 is computed until the date of termination, while separation pay in lieu of reinstatement is computed at one month salary for every year of service until the finality of the decision in the illegal dismissal case. As held in F.F. Marine Corporation vs. NLRC, separation pay awarded due to illegal dismissal is different from the separation pay provided under Article 283 (now 298). The amount already received in 2012 is less than what Bernal is entitled to and should be deducted from the total award during execution.

• Moral and Exemplary Damages: Moral and exemplary damages are not automatically awarded upon a finding of illegal dismissal. As held in Lambert Pawnbrokers and Jewelry Corp. vs. Binamira, a dismissal may be contrary to law but by itself does not establish bad faith entitling the employee to moral damages. Three factors negate bad faith: first, Bernal was not singled out—several other key officials were likewise terminated during the restructuring. Second, the practice of directing an employee not to report to work during the notice period ("garden leave") is not prohibited under Philippine labor laws and was expressly stated in the Notice of Termination. Third, as regards the grievance notification, Jenner and MacDow simply followed their internal procedure; the grievance was unrelated to the termination and could not be used to show bad faith. The termination, though unlawful for insufficiency of evidence, was not carried out in an arbitrary, capricious, or malicious manner.

• Requisites for Valid Redundancy — Under Asian Alcohol Corporation vs. NLRC, the employer must comply with four requisites: (1) written notice served on both the employees and the DOLE at least one month prior to the intended date of retrenchment; (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good faith in abolishing the redundant positions; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished. The Court applied this framework and found that while the first two requisites were met, the third and fourth were not, because MacDow failed to submit feasibility studies, job descriptions, or management approval of the restructuring.

• Burden of Proof in Redundancy — The burden to prove the existence of a valid redundancy program rests on the employer. Evidence that may be proffered includes the new staffing pattern, feasibility studies or proposals on the viability of newly created positions, job descriptions, and approval by management of the restructuring. Financial statements showing losses and organizational charts alone are insufficient, as held in Feati University vs. Pangan.

• Garden Leave — The practice of directing an employee not to attend work during the notice period of termination, colloquially known as "garden leave" or "gardening leave," is not prohibited under Philippine labor laws. The employee continues to be paid salary and benefits during the period. The Court held that this practice cannot be a sign of bad faith on the part of the employer.

• Separation Pay in Lieu of Reinstatement vs. Separation Pay Due to Redundancy — Separation pay in lieu of reinstatement, awarded to an illegally dismissed employee when reinstatement is no longer possible, is distinct from separation pay paid upon termination for an authorized cause such as redundancy. The former is computed at one month salary for every year of service until the finality of the decision in the illegal dismissal case; the latter is computed only until the date of termination. The amount already received as separation pay upon termination should be deducted from the separation pay in lieu of reinstatement during execution proceedings.

• Moral and Exemplary Damages in Illegal Dismissal — Moral and exemplary damages are not automatically awarded when an employee is illegally dismissed. The award requires proof that the dismissal was attended by bad faith, fraud, or was effected in a wanton, oppressive, or malevolent manner. A dismissal contrary to law, by itself, does not establish bad faith.

• "Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as overhiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise." — This passage, quoting Mejila vs. Wrigley Philippines, Inc. and Wiltshire File Co., Inc. vs. NLRC, defines the concept of redundancy under the Labor Code and is the canonical formulation frequently cited in labor jurisprudence.

• "The employer's exercise of its management prerogative, however, is not an unbridled right that cannot be subjected to this Court's scrutiny. The exercise of management prerogative is subject to the caveat that it should not be performed in violation of any law and that it is not tainted by any arbitrary or malicious motive on the part of the employer." — This passage, quoting Arabit vs. Jardine Pacific Finance, Inc., defines the limits of management prerogative in the context of redundancy terminations.

• "A dismissal may be contrary to law but by itself alone, it does not establish bad faith to entitle the dismissed employee to moral damages. The award of moral and exemplary damages cannot be justified solely upon the premise that the employer dismissed his employee without authorized cause and due process." — This passage, quoting Lambert Pawnbrokers and Jewelry Corp. vs. Binamira, articulates the rule that illegal dismissal alone does not warrant damages absent proof of bad faith.

• "It bears emphasis that the computation for separation pay due to redundancy and the computation for separation pay in lieu of reinstatement are different." — This sentence states the ratio decidendi on the distinction between the two types of separation pay, resolving the issue raised in Bernal's petition for partial review.

• Asian Alcohol Corporation vs. National Labor Relations Commission, 364 Phil. 912 (1999) — Leading case laying down the four requisites for a valid implementation of a redundancy program. Followed and applied as the controlling framework.
• Feati University vs. Pangan, G.R. No. 202851, September 9, 2019 — Held that financial audits and enrolment lists prove only the fact of financial losses, not that fair and reasonable criteria were used in determining which positions to declare redundant. Followed.
• Mejila vs. Wrigley Philippines, Inc., G.R. No. 199469, September 11, 2019 — Defined the concept of redundancy and discussed the "garden leave" practice. Followed.
• Arabit vs. Jardine Pacific Finance, Inc., 733 Phil. 41 (2014) — Held that management prerogative is not an unbridled right and is subject to the caveat against arbitrariness and malice. Followed.
• Abbott Laboratories (Philippines), Inc. vs. Torralba, 820 Phil. 196 (2017) — Discussed the right to full backwages and the computation thereof when reinstatement is no longer possible. Followed.
• Bani Rural Bank, Inc. vs. De Guzman, 721 Phil. 84 (2013) — Enumerated the instances when separation pay in lieu of reinstatement is proper. Followed.
• F.F. Marine Corporation vs. National Labor Relations Commission, 495 Phil. 140 (2005) — Categorically declared that separation pay in lieu of reinstatement is different from separation pay under Article 283 (now 298) of the Labor Code. Followed and applied to resolve Bernal's petition.
• Lambert Pawnbrokers and Jewelry Corp. vs. Binamira, 639 Phil. 1 (2010) — Held that moral and exemplary damages are not automatically awarded in illegal dismissal cases absent proof of bad faith. Followed to delete the damages award.
• Almodiel vs. NLRC, 295 Phil. 389 (1993) — Cited by MacDow for the proposition that the employer has wider discretion in determining the necessity of managerial positions. Not directly relied upon by the Court in its ruling.

• Article 298 (previously Article 283), Labor Code — Authorizes termination due to redundancy, requiring written notice to the worker and the DOLE at least one month before the intended date, and payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher. Applied as the statutory basis for redundancy terminations and for computing separation pay due to redundancy.
• Article 294 (previously Article 279), Labor Code — Guarantees security of tenure and provides that an unjustly dismissed employee is entitled to reinstatement without loss of seniority rights and to full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement, or if reinstatement is no longer possible, up to the finality of the decision. Applied to establish Bernal's entitlement to backwages.
• Section 4(b), Rule I, Rules Implementing Book VI of the Labor Code — Provides the instances when separation pay in lieu of reinstatement is proper: (a) when reinstatement is no longer possible because the position is no longer available; (b) when continued relationship is no longer viable due to strained relations; and (c) when the dismissed employee opted not to be reinstated or separation pay would be for the best interest of the parties. Applied to justify the award of separation pay in lieu of reinstatement.
• Article XIII, Section 3, 1987 Constitution — Enshrines the right of employees to security of tenure. Cited as the constitutional basis for the protections under Article 294 of the Labor Code.

Perlas-Bernabe (Chairperson), Hernando, Inting, and Dimaampao, JJ., concurred.