Mejila vs. Wrigley Philippines, Inc.

A redundancy dismissal is valid where the employer substantiates the redundancy with adequate proof and the decision is a fair exercise of business judgment; however, for authorized-cause termination under Article 298 of the Labor Code, strict compliance with the one-month written notice to the appropriate DOLE Regional Office is mandatory, and substantial compliance is insufficient, warranting nominal damages. Attorney's fees under Article 111 of the Labor Code are not recoverable absent unlawful withholding of wages.

WPI is a corporation engaged in the manufacturing and marketing of chewing gum. It engaged Mejila, a registered nurse, as an occupational health practitioner for its Antipolo manufacturing facility sometime in April 2002; her employment was initially contractual until she was regularized effective January 1, 2007. The Labor Code recognizes redundancy as an authorized cause for termination under Article 298 and requires written notice to the worker and the DOLE at least one month before the intended date; WPI's clinic operations were not an integral part of its gum manufacturing business.

WPI is a corporation engaged in the manufacturing and marketing of chewing gum. It engaged the services of Gertrudes D. Mejila, a registered nurse, as an occupational health practitioner for its Antipolo manufacturing facility sometime in April 2002. Her employment was initially contractual until she was regularized effective January 1, 2007. WPI's in-house clinic operations were not an integral part of its gum manufacturing business, and management considered a Headcount Optimization Program as early as February 2007 to streamline the organization and increase productivity.

On October 26, 2007, WPI sent Mejila a memorandum informing her that her position had been abolished as a result of the company's manpower rationalization program and that her employment would be terminated effective November 26, 2007. The memorandum stated that she was no longer required to work beginning October 26, although her salary would be paid until November 26, and required her to turn over all company properties no later than October 26. WPI granted separation pay at the rate of 1.5 months for every year of service, cash conversion of unused leaves, one-year extension of medical insurance, and pro rata 13th month pay, New Year pay, and mid-year pay, to be released upon return of all properties and completion of the exit clearance process. On the same date, WPI notified the DOLE Rizal Field Office of its decision to terminate Mejila and two others due to redundancy. WPI then engaged Activeone Health, Inc. to take over the services previously handled by the occupational health practitioners starting November 1, 2007. Like Mejila, Dr. Marilou L. Fonollera and nurse Soccoro Laarni B. Edurise were also terminated due to redundancy.

Mejila filed a complaint for illegal dismissal against WPI and its officers, Jesselyn Panis and Michael Panlaqui, WPI's Factory Director and People Learning and Development Manager, respectively. She accused WPI of acting with ill motive in implementing the redundancy program, but the evidence she presented was mainly hearsay and speculative. WPI's prior actions showed that it implemented the Headcount Optimization Program without singling out Mejila; prior to her termination, WPI had released at least 10 other employees as part of the program. WPI's business projections showed a correlation between an increase in volume and a decrease in headcount, and its computation of cost savings amounting to P522,713.79 from engaging Activeone was not adequately rebutted. Mejila's proposed computation considered only the basic monthly salary of clinic personnel, but the average monthly salary of Mejila and her co-nurses was higher than the service fees paid to Activeone when added benefits such as 13th to 15th month pay, holiday pay, cash gift, factory incentives, leave conversions, and allowances were taken into account. The NLRC found that outsourcing resulted in an overall cost savings of P500,000.00 for WPI.

On the procedural aspect, WPI served its termination notice on the DOLE Rizal Field Office rather than the appropriate DOLE Regional Office. The Regional Director of DOLE Regional Office IV-A, Atty. Ricardo S. Martinez, Sr., certified that his office did not receive a copy of WPI's termination notice. WPI argued that many functions of the regional offices had been devolved to provincial, field, or satellite offices, but it did not point to any DOLE issuance authorizing service of the termination notice on field offices. It relied on the Establishment Termination Report (RKS Form 5), which has a blank section at the header allowing employers to fill in the appropriate regional office, district, office, or provincial extension unit, but the form itself states that it must be accomplished "upon filing of notice of termination."

WPI offered to pay Mejila's salaries, separation pay, and other payments from the onset. Mejila refused to accept the payment out of the mistaken view that it was conditioned upon the execution of a quitclaim. The termination notice itself stated that the execution of a quitclaim would be after Mejila received the amounts owed by WPI. The Labor Arbiter found that outsourcing was more expensive for WPI, but the NLRC and the Court of Appeals found that the Headcount Optimization Program resulted in increased productivity and cost efficiency and that the outsourcing enabled WPI to focus on its core business of gum manufacturing.

• Mejila (G.R. No. 199469) — No Authorized Cause: Mejila assailed the Court of Appeals' finding that there was an authorized cause for her dismissal, maintaining that the redundancy program was not valid.
• Mejila (G.R. No. 199469) — Bad Faith: Mejila accused WPI of acting with ill motive in implementing the redundancy program, but the decision notes that her supporting evidence was mainly hearsay and speculative.
• Mejila (G.R. No. 199469) — Cost of Outsourcing: Mejila's proposed computation took into account only the basic monthly salary of the clinic personnel to argue that outsourcing was more expensive.
• WPI (G.R. No. 199505) — Substantial Compliance: WPI conceded that the Implementing Rules and Regulations of the Labor Code textually require notice to the appropriate DOLE Regional Office but argued that many functions of the regional offices had been devolved to provincial, field, and/or satellite offices, so notice to the DOLE Rizal Field Office substantially complied with the 30-day notice requirement.
• WPI (G.R. No. 199505) — RKS Form 5: WPI pointed to the Establishment Termination Report (RKS Form 5), which has a blank header allowing employers to fill in the appropriate regional office, district, office, or provincial extension unit, to support its position.
• WPI (G.R. No. 199505) — Attorney's Fees: WPI insisted that there was no basis to grant attorney's fees in the absence of proof of bad faith on its part.

• Validity of Redundancy: Whether Mejila's dismissal on the ground of redundancy was valid and supported by an authorized cause under Article 298 of the Labor Code.
• Garden Leave / Immediate Severance: Whether the termination notice, which directed Mejila not to report for work during the notice period, effectively caused her immediate severance from employment.
• Procedural Due Process — Notice to DOLE: Whether WPI complied with the requirement of serving written notice of termination on the appropriate DOLE Regional Office at least one month before the intended date of termination, or whether notice to the DOLE Rizal Field Office constituted substantial compliance.
• Nominal Damages: Whether WPI's failure to comply with the procedural notice requirement entitles Mejila to nominal damages.
• Attorney's Fees: Whether the Court of Appeals correctly awarded attorney's fees in favor of Mejila under Article 111 of the Labor Code.

• Validity of Redundancy: Yes. Redundancy was valid; WPI substantiated its Headcount Optimization Program as a fair exercise of business judgment, and Mejila failed to prove bad faith or arbitrariness.
• Garden Leave / Immediate Severance: No. The notice did not immediately sever Mejila's employment; garden leave is not prohibited under Philippine labor laws, and the employee remains employed and paid during the notice period.
• Procedural Due Process — Notice to DOLE: No. Substantial compliance is insufficient for authorized-cause termination; written notice must be served on the appropriate DOLE Regional Office, and WPI served only the Rizal Field Office.
• Nominal Damages: Yes. Failure to comply with the procedural requirements under the Labor Code entitles the dismissed employee to nominal damages; WPI is liable for P50,000.00.
• Attorney's Fees: No. Article 111 of the Labor Code applies only to unlawful withholding of wages, which is absent because WPI did not withhold Mejila's wages and had offered to pay her.

• Validity of Redundancy: Article 298 recognizes redundancy as an authorized cause. Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise; duplication of work is not required. The employer's determination is an exercise of business judgment, not subject to discretionary review absent violation of law or an arbitrary or malicious act. The employer must produce adequate proof, such as the new staffing pattern, feasibility studies, proposal on the viability of newly created positions, job description, and approval by management. WPI proved that its Headcount Optimization Program was deliberated as early as February 2007 to streamline the organization and increase productivity; outsourcing clinic operations was reasonable to focus on the core business of gum manufacturing; business projections showed a correlation between an increase in volume and a decrease in headcount; the cost savings of P522,713.79 from engaging Activeone was not adequately rebutted; and Mejila's computation considered only basic salary, while the average monthly salary of Mejila and her co-nurses was higher than Activeone's service fees when benefits were included. Mejila failed to prove ill motive; her evidence was hearsay and speculative; WPI had released at least 10 other employees under the program. Bad faith cannot be presumed and must be proved by clear and convincing evidence. Thus, the policy of non-interference with the employer's exercise of business judgment applies.
• Garden Leave / Immediate Severance: The practice of directing an employee not to attend work during the notice period is known as garden leave. The employee remains employed and continues to receive salary and contractual benefits as if rendering services. In the United Kingdom and the United States, garden leave clauses are generally upheld. In the Philippines, garden leave is commonly used in relation to the 30-day notice period for authorized causes, and no labor law prohibits it. The Court of Appeals initially found that the notice caused immediate severance, but on reconsideration upheld WPI's assertion that it did not; the Supreme Court agreed. WPI directed Mejila not to work beginning October 26 but paid her salary until November 26, so there was no immediate severance.
• Procedural Due Process — Notice to DOLE: Article 298 requires written notice on the worker and the DOLE at least one month before the intended date of termination. Book V, Rule XXIII, Section 2 of the Implementing Rules and Regulations of the Labor Code deems compliance upon service of written notice on the employee and the appropriate Regional Office at least thirty days before the effectivity of the termination, specifying the ground or grounds. Where termination is based on authorized causes, substantial compliance is not enough; strict observance is required because the dismissal is initiated by the employer's exercise of management prerogative and to give life to the constitutional protection afforded to labor. The language of the Implementing Rules is clear. WPI served only the DOLE Rizal Field Office. The Regional Director of DOLE Regional Office IV-A certified that no notice was received. WPI did not point to any DOLE issuance authorizing service on field offices; its assumption based on devolution was unwarranted absent a clear devolution of authority to receive termination notices. The RKS Form 5 is not the equivalent or substitute for the required notice; it must be accomplished upon filing of notice of termination. Thus, notice to the Regional Office was not complied with.
• Nominal Damages: An employer's failure to comply with the procedural requirements under the Labor Code entitles the dismissed employee to nominal damages. If the dismissal is based on an authorized cause under Article 298 but the employer failed to comply with the notice requirement, the sanction is stiffer compared to termination based on Article 297 because the dismissal is initiated by the employer's exercise of management prerogative. Having found both notices to Mejila and the DOLE defective, WPI is liable for nominal damages of P50,000.00.
• Attorney's Fees: Attorney's fees have ordinary and extraordinary concepts. Under Article 2208 of the Civil Code, extraordinary attorney's fees require factual, legal, and equitable justification and generally cannot be recovered absent a sufficient showing of bad faith. The Court of Appeals found no sufficient proof of bad faith, ruling out Article 2208. Article 111 of the Labor Code allows attorney's fees in cases of unlawful withholding of wages, without requiring malice or bad faith, but there must still be an express finding of facts and law. The provision applies only when there is unlawful withholding of wages. WPI did not withhold Mejila's wages; it offered from the onset to pay salaries, separation pay, and other payments. Mejila refused out of the mistaken view that payment was conditioned on a quitclaim, but the termination notice stated the quitclaim would be executed after she received the amounts owed. Thus, the award of attorney's fees was improper and was deleted.

• Redundancy — Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise; duplication of work is not required. It may result from overhiring, decreased volume of business, or dropping of a product line or service activity. The employer must produce adequate proof, such as the new staffing pattern, feasibility studies, proposal on the viability of newly created positions, job description, and management approval. The employer's determination is an exercise of business judgment, not subject to discretionary review absent violation of law or an arbitrary or malicious act. The employer bears the burden of proving redundancy, while the employee bears the burden of proving bad faith by clear and convincing evidence. Applied: WPI's Headcount Optimization Program and outsourcing of clinic operations were valid redundancy.
• Management Prerogative / Business Judgment — Management has the ultimate determination of whether services should be performed by its personnel or contracted to outside agencies; contracting out of services is an exercise of business judgment or management prerogative. Courts will not interfere absent malice, arbitrariness, or violation of law. Applied: WPI's decision to outsource clinic operations was upheld.
• Garden Leave — An employer may direct an employee not to attend work during the notice period of resignation or termination; the employee remains employed and continues to receive salary and contractual benefits as if rendering services. No Philippine labor law prohibits a garden leave clause. Applied: WPI's directive that Mejila need not report for work from October 26 while being paid until November 26 did not immediately sever her employment.
• Strict Compliance with Procedural Due Process in Authorized-Cause Termination — For termination based on authorized causes under Article 298, the employer must serve written notice on both the employee and the appropriate DOLE Regional Office at least one month before the intended date of termination. Substantial compliance is insufficient; strict observance is required because the dismissal is initiated by the employer's exercise of management prerogative. A notice served on a field or satellite office does not comply absent clear devolution of authority to receive it. Applied: WPI's notice to the DOLE Rizal Field Office was insufficient.
• Nominal Damages for Procedural Due Process Violation — An employer's failure to comply with the procedural requirements under the Labor Code entitles the dismissed employee to nominal damages. For authorized-cause termination under Article 298, the sanction is stiffer than for just-cause termination under Article 297 because the dismissal is employer-initiated. Applied: WPI was held liable for P50,000.00 nominal damages.
• Attorney's Fees — Attorney's fees may be ordinary (compensation paid by client to lawyer) or extraordinary (indemnity for damages awarded by court). Under Article 2208 of the Civil Code, extraordinary attorney's fees require factual, legal, and equitable justification and generally require bad faith. Under Article 111 of the Labor Code, attorney's fees may be recovered in cases of unlawful withholding of wages without proof of bad faith, but there must be an express finding of facts and law and an actual unlawful withholding. Applied: The award was deleted because WPI did not withhold Mejila's wages.

• "Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise." — This states the canonical definition of redundancy applied in the case and supports the finding that WPI's Headcount Optimization Program was a valid authorized cause.
• "Where termination is based on authorized causes under Article 298, substantial compliance is not enough. Since the dismissal is initiated by the employer's exercise of its management prerogative, strict observance of the proper procedure is required in order to give life to the constitutional protection afforded to labor." — This is the ratio decidendi for rejecting WPI's substantial-compliance argument and requiring notice to the appropriate DOLE Regional Office.
• "An employer's failure to comply with the procedural requirements under the Labor Code entitles the dismissed employee to nominal damages." — This establishes the sanction for the procedural due process violation and supports the award of P50,000.00 nominal damages.
• "The provision only applies when there is unlawful withholding of wages. This scenario is non-existent in the present case because WPI did not withhold Mejila's wages." — This explains why the Court of Appeals erred in awarding attorney's fees under Article 111 of the Labor Code and why the award was deleted.

• Wiltshire File Co., Inc. vs. NLRC, G.R. No. 82249, February 7, 1991, 193 SCRA 665 — Seminal case defining redundancy; cited for the rule that redundancy exists where services are in excess of actual requirements and that duplication of work is not required.
• Asufrin, Jr. vs. San Miguel Corporation, G.R. No. 156658, March 10, 2004, 425 SCRA 270 — Cited for the rule that the employer's business judgment on redundancy is not subject to discretionary review absent violation of law or an arbitrary or malicious act.
• Panlilio vs. National Labor Relations Commission, G.R. No. 117459, October 17, 1997, 281 SCRA 53 — Cited for the evidentiary requirements to substantiate redundancy, such as new staffing pattern, feasibility studies, and management approval.
• Padillo vs. Rural Bank of Nabunturan, Inc., G.R. No. 109338, January 21, 2013, 689 SCRA 53 — Cited for the rule that bad faith cannot be presumed and must be proved by clear and convincing evidence by the employee alleging it.
• Manila Electric Company vs. Quisumbing, G.R. No. 127598, February 22, 2000, 326 SCRA 172 — Cited for the rule that contracting out of services is an exercise of business judgment or management prerogative.
• Andrada vs. National Labor Relations Commission, G.R. No. 173231, December 28, 2007, 541 SCRA 538 — Cited for strict observance of procedural requirements in authorized-cause termination.
• Wah Yuen Restaurant vs. Jayona, G.R. No. 159448, December 16, 2005, 478 SCRA 315 — Cited together with Andrada for strict compliance with notice requirements.
• Philemploy Services and Resources, Inc. vs. Rodriguez, G.R. No. 152616, March 31, 2006, 486 SCRA 302 — Cited for the same procedural due process requirement in authorized-cause dismissals.
• Jaka Food Processing Corporation vs. Pacot, G.R. No. 151378, March 28, 2005, 454 SCRA 119 — Cited for the rule that non-compliance with procedural requirements in authorized-cause termination warrants nominal damages, with a stiffer sanction than just-cause termination.
• Nippon Housing Phil., Inc. vs. Leynes, G.R. No. 177816, August 3, 2011, 655 SCRA 77 — Cited in connection with the award of P50,000.00 nominal damages.
• Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union vs. Manila Water Company, Inc., G.R. No. 174179, November 16, 2011, 660 SCRA 263 — Cited for the ordinary and extraordinary concepts of attorney's fees.
• Philippine National Construction Corporation vs. APAC Marketing Corporation, G.R. No. 190957, June 5, 2013, 697 SCRA 441 — Cited for the rule that attorney's fees under Article 2208 of the Civil Code require factual, legal, and equitable justification and sufficient showing of bad faith.
• ABS-CBN Broadcasting Corporation vs. Court of Appeals, G.R. No. 128690, January 21, 1999, 301 SCRA 527 — Cited for the rule that Article 111 of the Labor Code allows attorney's fees in cases of unlawful withholding of wages without proof of bad faith, but requires an express finding of facts and law.
• Maltby vs. Harlow Meyer Savage Inc., 633 N.Y.S. 2d 926 (1995); Lumex, Inc. vs. Highsmith and Life Fitness, 919 F. Supp. 624 (1996); Natsource LLC vs. Paribello, 151 F. Supp. 2d 465 (2001); Estee Lauder Co., Inc. vs. Batra, 430 F. Supp. 2d 158 (2006) — Cited as examples of United States courts upholding garden leave clauses.

• Article 298, Labor Code (formerly Article 283) — Authorizes termination due to redundancy; requires written notice on the workers and the Ministry of Labor and Employment at least one month before the intended date; provides separation pay of at least one month pay or one month pay for every year of service, whichever is higher, for redundancy.
• Book V, Rule XXIII, Section 2, Implementing Rules and Regulations of the Labor Code (DOLE Order No. 40-03) — Provides that the procedural requirement is deemed complied with upon service of written notice to the employee and the appropriate Regional Office of the Department at least thirty days before the effectivity of the termination, specifying the ground or grounds for termination.
• Article 111, Labor Code — Allows recovery of attorney's fees in cases of unlawful withholding of wages equivalent to the amount of wages to be recovered; no showing of malice or bad faith is required, but there must be an express finding of facts and law.
• Article 2208, Civil Code — Governs extraordinary attorney's fees as indemnity for damages; paragraph 7 covers actions for recovery of wages; requires factual, legal, and equitable justification and sufficient showing of bad faith.
• Article 297, Labor Code — Referenced as the provision for termination based on just cause; the procedural sanction for authorized-cause termination under Article 298 is stiffer because the dismissal is initiated by the employer's exercise of management prerogative.

Bersamin, C.J. (Chairperson), Perlas-Bernabe, Gesmundo, and Carandang, JJ., concur.