MGG Marine Services, Inc. vs. NLRC

An employer may validly dismiss a comptroller-finance officer for loss of trust and confidence, based on substantial evidence, where the officer admits violating explicit instructions on the disbursement of limited corporate funds and thereby causes a collapse in the company’s cash flow; however, failure to observe the twin notice and hearing requirements renders the employer liable only for indemnity, not reinstatement, backwages, or separation pay.

MGG Marine Services, Inc. employed Elizabeth A. Molina, who became its comptroller, over-all supervisor, and financial officer. Petitioner Doroteo C. Garlan was MGG’s president, and petitioner Cesar Rotilo was its personnel manager. Molina’s position involved holding corporate funds in trust and disbursing them under management’s authorization, a relationship governed by the Labor Code’s requirements of just cause and procedural due process for dismissal.

MGG Marine Services, Inc. employed Elizabeth A. Molina on July 1, 1988. By March 1, 1990, before MGG president Doroteo C. Garlan left for the United States on March 25, 1990, he appointed Molina as comptroller and over-all supervisor, concurrently with her position as financial officer. As comptroller, she was tasked to hold corporate funds in trust to pay company obligations as authorized by the president and board of directors, and Garlan instructed her to pay obligations as they fell due.

Ma. Lourdes G. Unson, MGG vice-president who also traveled to the United States, left Molina 79 prepared and pre-signed checks—16 blank and 63 with specific amounts—with corresponding vouchers stating the debts due and creditors. Molina was specifically told to pay only creditors named in the cash vouchers and to place on each of the 16 blank checks the amount stated in the corresponding voucher. The checks were payable to Molina, who was to withdraw the money and pay the creditors. At the time the officers left, MGG had about P1.5 million in its bank account; the total amount payable to creditors in the vouchers for the 16 blank checks was P224,131.50, and all payments were programmed according to the company’s plans and budget to maintain an optimal cash reserve.

When the corporate officers returned in June 1990, they found the company’s deposits reduced to only P5,720.00. Molina had disobeyed the instruction not to pay more than the vouchers specified: she increased the amounts she wrote on the blank checks and, instead of paying P224,131.50, withdrew an aggregate P1,515,823.00. She also paid creditors not specified in the cash vouchers. When MGG had to pay an obligation of P15,000.00 on June 7, 1990, Molina could withdraw only P5,720.00. In her pleadings, she did not give a satisfactory explanation for violating the instructions except to claim that she did not profit by a single centavo from the withdrawals, which she paid to company creditors.

MGG filed estafa charges against Molina, but these were dismissed. On November 12, 1990, MGG terminated Molina’s employment for loss of trust and confidence. She then filed a complaint for illegal dismissal against MGG and its officers.

The Labor Arbiter found no proof that Molina misappropriated corporate funds, that she was authorized to disburse the funds to settle the company’s various accounts with creditors, and that no centavo went to her pocket. The estafa complaint was dismissed by Assistant City Prosecutor Eudoxia T. Gualberto in a resolution dated September 30, 1991, and the motion for reconsideration of that dismissal was denied by the City Prosecutor of Manila.

• Loss of Trust and Confidence: Petitioners asserted that Molina’s dismissal was legally justified because she violated explicit instructions from senior management by entering amounts on the blank checks in excess of those stated in the corresponding vouchers and by paying creditors not named in the vouchers, thereby reducing the company’s reserve funds from about P1.4 million to P5,720.00 and causing real damage to its cash flow.
• Managerial Position and Self-Protection: Petitioners maintained that Molina was not an ordinary rank-and-file employee but the comptroller-finance officer entrusted with corporate funds, and that an employer cannot be compelled to retain an employee guilty of acts inimical to its interests, especially one occupying a position of responsibility.
• Abandonment of Misappropriation: Petitioners abandoned misappropriation as a ground in the petition, since the estafa complaint had been dismissed, and relied instead on loss of confidence resulting from Molina’s disobedience and unfaithfulness in the discharge of her duties.
• Procedural Due Process Compliance: Petitioners argued that Molina was audited upon the return of senior management and was asked questions and allowed to explain her side, which they claimed satisfied due process.
• Due Process Before the Labor Arbiter: Petitioners claimed they were denied due process when the Labor Arbiter considered the case submitted for resolution despite their manifestation of intention to present additional evidence.

• Authority to Disburse: Private respondent maintained that she was authorized to disburse corporate funds to settle the company’s various accounts with its different creditors, and the Labor Arbiter found she successfully defended herself on that ground.
• No Personal Benefit: She claimed that she did not profit by a single centavo from the withdrawals, which were paid to company creditors, and that the estafa complaint against her was dismissed.
• Vouchers and Checks as Guidelines: She testified that senior management left her vouchers and guidelines supported by 79 checks—16 blank and 63 with amounts—and that the blank checks were the means by which she was to facilitate payment of company obligations.
• Due Process Violation: The Solicitor General, in his Comment, raised that Molina was denied due process; an audit and questioning during audit were not the hearing contemplated by law.

• Lawful Cause — Loss of Trust and Confidence: Whether there was lawful cause for the dismissal of private respondent.
• Procedural Due Process — Employer: Whether petitioners complied with the procedural requirements for a valid dismissal.
• Due Process Before the Labor Arbiter: Whether petitioners were accorded due process at the hearing before the Labor Arbiter.

• Lawful Cause — Loss of Trust and Confidence: Yes. The dismissal was with just cause; Molina’s admitted violation of specific instructions and unauthorized disbursements constituted loss of trust and confidence, supported by substantial evidence.
• Procedural Due Process — Employer: No. Petitioners failed to give the two written notices and a hearing; an audit and questioning during audit did not satisfy due process. Because just cause existed, however, the remedy is indemnity, not reinstatement, backwages, or separation pay.
• Due Process Before the Labor Arbiter: No. Petitioners were not denied due process; they were given opportunities to present additional evidence but failed to take advantage of them, and the Labor Arbiter did not abuse his discretion.

• Lawful Cause — Loss of Trust and Confidence: The Court found a basis for MGG’s loss of trust and confidence. Molina did not deny that she entered on the blank checks amounts in excess of those provided in the cash vouchers and made payments to creditors other than those specified. The Labor Arbiter’s decision quoted petitioners’ position paper and the affidavit of Renato Jose O. Unson, which explained that Molina was tasked to hold corporate funds in trust, was instructed to pay only the creditors named in the vouchers, and was told to place on each blank check the amount stated in the corresponding voucher. Instead, she withdrew P1,515,823.00 instead of the budgeted P224,131.50, an excess of P1,291,691.50, and paid unauthorized creditors. The company’s deposits fell to P5,720.00, and on June 7, 1990, it could not pay a P15,000.00 obligation. The Court held that her disobedience and precipitate acts caused great damage to the company’s cash flow. Cash flow was critical to business survival, and Molina, as comptroller-finance officer, was not an ordinary rank-and-file employee but one who violated her duty to control cash flow and specific instructions on how limited cash was to be spent. An employer cannot be compelled to retain an employee guilty of acts inimical to its interests, and this is especially true for supervisors or personnel occupying positions of responsibility. The dismissal of the estafa complaint did not preclude the finding of acts inimical to the employer’s interest; proof beyond reasonable doubt was not required, only substantial evidence. The Court abandoned misappropriation as a ground and relied on loss of confidence resulting from disobedience and unfaithfulness. Even assuming no specific written instructions, Molina’s position required her to allocate available funds to the most critical and immediate needs and to observe an order of priorities; paying lower-priority obligations in advance to the detriment of more pressing obligations was precipitate and ill-considered. The majority did not base its ruling on the claim of bouncing checks but on the jeopardy to the company’s cash flow.
• Procedural Due Process — Employer: The Court reiterated that a valid dismissal requires both just cause and procedural due process: two written notices—one of the intention to dismiss indicating the acts or omissions complained of, and another of the decision to dismiss—and an opportunity to answer and rebut the charges in between. The twin requirements of notice and hearing cannot be dispensed with without running afoul of the due process requirement of the 1987 Constitution. Here, the record was devoid of any showing that Molina was given notice of the charges or a hearing or opportunity to present her defense. Petitioners’ only allegation was that she was asked questions during the audit, but this was too scant and bare to amount to due process; there was no indication of the nature and type of questions, the process of inquiry, the time and opportunity given for her defense, or the degree of explanation allowed. An audit cannot take the place of the twin requirements of notice and hearing. Failure to comply tainted the dismissal with illegality. However, because just cause existed, Molina was not entitled to backwages, reinstatement, or separation pay. Under prevailing jurisprudence, she was entitled only to indemnity or damages, the amount depending on the circumstances. The Court cited Wenphil Corporation vs. NLRC, where dismissal for just cause was maintained but the employer was ordered to indemnify P1,000.00 for failure to give formal notice and conduct an investigation; Rubberworld (Phils.) Inc. vs. NLRC, which ordered P1,000.00 indemnification; Aurelio vs. NLRC, which held that non-observance of due process warrants only a sanction and that separation pay was improper; Reta vs. NLRC, which raised the award to P10,000.00 because the employee was forced to leave his ship in a foreign port; Alhambra Industries Inc. vs. NLRC, which held that termination for cause even without procedural due process does not warrant reinstatement but the employer incurs liability for damages; and Cathedral School of Technology vs. NLRC, which held that where dismissal is for just cause, there is no factual or legal basis for backwages or separation pay. Following these cases, the Court awarded P1,000.00 indemnity.
• Due Process Before the Labor Arbiter: Petitioners claimed they were denied due process when the Labor Arbiter considered the case submitted for resolution despite their intention to present additional evidence. The Court disagreed. Petitioners first asked to present additional evidence at the June 9, 1992 hearing but manifested that the documents were not then available. The Labor Arbiter allowed them to present the documents at the next hearing, which was reset to August 4, 1992 because the scheduled date was a special non-working holiday. On August 4, 1992, petitioners’ counsel failed to appear because of another urgent matter and filed a motion for postponement. The Labor Arbiter denied the motion and considered the case submitted for resolution. On reconsideration, the Labor Arbiter reset the case for reception of additional evidence on October 30, 1992, but petitioners again failed to appear, prompting the Labor Arbiter to consider the case submitted. Under these circumstances, the Labor Arbiter did not abuse his discretion. There is no denial of due process where the party was given an opportunity to present his case but did not take advantage of it. Consequently, Molina’s claims for thirteenth month pay, overtime pay, and unpaid salary stood unrebutted.

• Loss of Trust and Confidence as Just Cause — An employer may dismiss a managerial or confidential employee for loss of trust and confidence where substantial evidence shows an admitted violation of explicit instructions and unauthorized disbursement of corporate funds, even if the employee did not personally profit and was not criminally convicted. The breach need not be proven beyond reasonable doubt; substantial evidence suffices.
• Twin Notice and Hearing Requirement — A valid dismissal requires both just cause and procedural due process: (a) a written notice of the intention to dismiss specifying the acts or omissions complained of; (b) an opportunity to answer and rebut; and (c) a subsequent written notice of the decision to dismiss. An audit or questioning during audit is not a substitute for these requirements.
• Indemnity Where Just Cause Exists but Due Process Is Violated — Where the dismissal is for just cause but the employer fails to observe procedural due process, the dismissal is not set aside; the employer is liable only for indemnity or damages, not reinstatement, backwages, or separation pay. The amount depends on the circumstances; in this case, P1,000.00.
• Acquittal in a Criminal Case Does Not Preclude Dismissal — An employee’s acquittal in a criminal case does not preclude a finding that the employee committed acts inimical to the employer’s interest; the quantum of proof in dismissal cases is only substantial evidence.
• Due Process Before the Labor Arbiter — There is no denial of due process where the party was given an opportunity to present evidence but failed to take advantage of it; the Labor Arbiter does not abuse discretion in considering the case submitted for resolution after repeated non-appearance.
• Duty of a Comptroller-Finance Officer — A comptroller-finance officer has the duty to control the company’s cash flow and, even absent specific written instructions, to allocate limited funds to the most critical and immediate needs and observe an order of priorities in settling accounts. Precipitate disbursements that jeopardize liquidity can justify loss of trust and confidence.

• "To justify fully the dismissal of an employee, the employer — as a rule — must prove (a) that the termination was due to a just cause and (b) that the employee was afforded due process prior to dismissal." — This opening formulation states the two-fold requirement for a valid dismissal and frames the Court’s analysis of both just cause and procedural due process.
• "An employer cannot be compelled to retain an employee who is guilty of acts inimical to the interests of the employer." — This is the ratio for the just-cause ruling: Molina’s admitted violation of trust and her unauthorized disbursements justified the employer’s loss of confidence.
• "The law requires that the employer must furnish the worker sought to be dismissed with two (2) written notices before termination of employment can be legally effected: (1) notice which apprises the employee of the particular acts or omissions for which his dismissal is sought; and (2) the subsequent notice which informs the employee of the employer’s decision to dismiss him." — This passage defines the procedural due process requirement that petitioners failed to satisfy, notwithstanding the existence of just cause.
• "In the instant case, following the jurisprudence firmly established in the aforecited cases, she is entitled to indemnity of P1,000.00." — This states the remedy awarded for the procedural due process violation where just cause for dismissal was established.

• Wenphil Corporation vs. NLRC, 170 SCRA 69 (1989) — Leading “indemnity case”; where dismissal was for just cause but due process was not observed, the dismissal was maintained but the employer was ordered to indemnify the employee P1,000.00.
• Rubberworld (Phils.) Inc. vs. NLRC, 183 SCRA 421 (1990) — Followed Wenphil and ordered P1,000.00 indemnification for failure to observe due process prior to termination for just cause.
• Aurelio vs. NLRC, 221 SCRA 432 (1993) — Held that where there was a valid ground to dismiss but due process was not observed, only a sanction should be imposed on the employer, and the NLRC erred in awarding separation pay.
• Reta vs. NLRC, 232 SCRA 613 (1994) — Raised the indemnity to P10,000.00 because the employee was given his walking papers and forced to leave his ship in a foreign port.
• Alhambra Industries Inc. vs. NLRC, 238 SCRA 232 (1994) — Held that termination of a worker for cause, even without procedural due process, does not warrant reinstatement, but the employer incurs liability for damages.
• Cathedral School of Technology vs. NLRC, 214 SCRA 551 (1992) — Held that where dismissal is for just cause, there is no factual or legal basis for backwages or separation pay; separation pay may be allowed as social justice only in cases other than serious misconduct or those reflecting on moral character.
• Tingson, Jr. vs. NLRC, 185 SCRA 498 (1990) — Held that the two written notices are mandatory and failure to comply taints the dismissal with illegality.
• Sea-Land Service, Inc. vs. NLRC, 136 SCRA 544 (1985) — Held that an employee’s acquittal in a criminal case does not preclude a finding that he has been guilty of acts inimical to the employer’s interest.
• Estiva vs. NLRC, 225 SCRA 169 (1993) and De Vera vs. NLRC, 200 SCRA 439 (1991) — Cited for the rule that the quantum of proof required in dismissal for loss of trust and confidence is only substantial evidence.
• Kwikway Engineering Works vs. NLRC, 195 SCRA 526 (1991) — Cited for the due process requirements in dismissal and for the P1,000.00 damages awarded for failure to observe due process.

• Section 13, BP 130 — Requires the employer to furnish the worker with two written notices before termination: one apprising the employee of the particular acts or omissions for which dismissal is sought, and another informing the employee of the employer’s decision to dismiss. Failure to comply taints the dismissal with illegality.
• Sections 2-6, Rule XIV, Book V, Rules and Regulations Implementing the Labor Code as amended — Implementing rules cited by the Court for the same two-notice requirement in employee dismissal.
• 1987 Constitution, due process requirement — The Court stated that the twin requirements of notice and hearing cannot be dispensed with without running afoul of the due process requirement of the 1987 Constitution. The text does not specify a particular article.

• Narvasa, C.J., Padilla, Regalado, Melo, Kapunan, Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr., JJ. — Concurred in the majority decision.
• Bellosillo, J. — On leave.
• Justice Romero (concurring) — Would affirm the Labor Arbiter and NLRC finding that the dismissal was wrongful, malicious, and in bad faith and that Molina should be reinstated; disagreed with denying reinstatement on the ground of strained relations, which should not be applied indiscriminately and must be carefully and adequately proved; even for a confidential employee, automatic application of the doctrine is too harsh.
• Justice Vitug (concurring) — Set out the rules on just cause, due process, reinstatement, backwages, damages, and separation pay; perceived no grave abuse of discretion in the Labor Arbiter’s and NLRC’s factual assessment and in the order for separation pay in lieu of reinstatement due to strained relations; voted to dismiss the petition.

• Justice Puno, joined by Justice Davide, Jr. — Dissented on the ground that the Labor Arbiter and NLRC’s factual finding of illegal dismissal was supported by substantial evidence and should be respected. The alleged instructions were not proved by convincing evidence; Atty. Unson lacked personal knowledge, the senior management official was not presented, and the instructions were not in writing. Molina testified on her authority and was cross-examined; the vouchers were mere guidelines, and the blank checks implied discretion. The estafa case was dismissed. The majority’s claim of damage, including bouncing checks, was not in the Position Paper, Unson’s affidavit, his testimony, or the appeal memorandum, and was made for the first time in the petition. Puno agreed that due process was denied but would re-examine the strained relationship doctrine, requiring it to be pleaded and proved, and voted to dismiss the petition.