Morales vs. Central Azucarera de La Carlota, Inc.

A dismissal due to redundancy is valid where the employer proves business losses and that the abolished positions are not essential to the core business, and where repeated personal attempts to serve written notices, the employees' refusal to receive them, and actual verbal notice constitute substantial compliance with procedural due process.

Central Azucarera de La Carlota, Inc. operates a sugar mill in La Carlota City, Negros Occidental, with guest houses inside its compound for the resident manager and transient workers. Petitioners Marcos Antonio Morales, Georgina D. Tribujenia, Cicero A. Cajurao, and Noli A. Dejan were its employees assigned to housekeeping, utility maintenance, and cooking in those guest houses; they were initially rank-and-file and later transferred to the Office of the Resident Manager as confidential employees. The Labor Code authorizes termination due to redundancy, subject to notice and separation pay requirements, and jurisprudence treats redundancy as an exercise of management prerogative that must satisfy substantial and procedural requisites.

Central Azucarera de La Carlota, Inc. is a sugar mill in La Carlota City, Negros Occidental. Inside its compound are buildings and facilities used to mill sugar, as well as guest houses to accommodate select employees. The first guest house is used by the resident manager and their family, while the second and third guest houses accommodate transient workers who have temporary assignments in Central Azucarera, such as auditors, mechanics, technicians, and department heads usually sent by Central Azucarera's mother company in Makati City. Petitioners Marcos Antonio Morales, Georgina D. Tribujenia, Cicero A. Cajurao, and Noli A. Dejan were among the employees of Central Azucarera assigned to basic housekeeping, utility maintenance, and cooking functions in the guest houses. They were classified as rank-and-file employees by Central Azucarera's Human Resource Department and enjoyed the protection of Central Azucarera's rank-and-file union. In 2006, they were transferred to the Office of the Resident Manager as confidential employees, and thus removed from the union.

On August 21, 2007, the head of the Human Resource Department, Jose Parcon, announced that the positions of the guest house workers were redundant and said that Morales et al.'s employment would be terminated effective September 21, 2007. They were told that they would receive separation pay equivalent to one month of their pay for every year of service rendered, plus 20% thereof. Central Azucarera distributed letters to its employees, including Morales et al. and Fermin Suringa, Jr., informing them of their eventual termination from the company due to the downsizing program it was implementing because of business losses. In the letters, the affected employees were given the option to avail of an early retirement package with a caveat that if they chose not to avail of early retirement, their positions would be abolished, and they would instead be given retrenchment pay. They were then informed that after termination, they would be re-hired by Central La Carlota Multi-Purpose Cooperative for a lower salary.

While Suringa chose to avail of the offered package, Morales et al. refused to sign the documents. After a few days, Dionisio Caspi, Group Manager of the Human Resources Department, called Morales et al. to persuade them to accept the offer. Caspi repeated the offer and warned them that Central Azucarera would not hire them as contractual employees in the future if they refused to accept the proposal. Still, Morales et al. refused, and instead proposed that they be transferred to a different department as regular employees. Caspi replied that there were no vacant positions. On September 22, 2007, Morales et al. reported for work, but the biometric Bundy clock no longer recognized them, preventing them from entering the mill. They waited a year for Central Azucarera to offer them new assignments but were left disappointed.

On March 30, 2009, Morales et al. filed a complaint before the Regional Arbitration Branch VI of the National Labor Relations Commission in Bacolod City for illegal dismissal, nonpayment of overtime pay, moral and exemplary damages, and attorney's fees. Central Azucarera failed to file a position paper. The labor tribunals and Court of Appeals later found that respondent had presented audited financial statements prepared by Isla Lipana Co. from 2005 to 2007, showing a loss of P55,355,905.00 in 2005, a profit of P21,442,317.00 in 2006, and a loss of P28,445,914.00 in 2007. They also found that the guest houses continued to operate but were maintained by the resident manager, and that respondent attempted personal service of notices dated July 23, 2007 and August 21, 2007, which petitioners refused, followed by registered mail that was returned unclaimed; a notice and an Establishment Termination Report were served on the Department of Labor and Employment.

• Lack of Real Redundancy: Petitioners contended that the Court of Appeals erred when it affirmed the National Labor Relations Commission's Resolution finding that they were validly dismissed on the ground of redundancy. They claimed that other than the self-serving statements of respondent, it failed to prove that the nature of their employment was indeed superfluous and no longer necessary for its business. They added that the guest houses to which they were previously assigned were still operating, discrediting the company's claim that their positions were redundant.
• Procedural Due Process Violation: Petitioners alleged that respondent failed to comply with the procedural requisites necessary for terminations due to redundancy as it failed to serve a written notice on petitioners. They added that respondent's manifestation that the written notices sent via registered mail were returned as unclaimed did not satisfy the notice requirement laid down in law and jurisprudence.
• Bad Faith and Scheme: Petitioners claimed that respondent was in bad faith when it terminated petitioners due to redundancy considering that it re-hired Suringa, the only guest house employee that availed of the early retirement package, and re-assigned him to work in the guest house. They alleged that respondent's scheme in terminating their employment only to re-hire them under a different company name but for the same function and assignment was merely a ploy to remove the employees from the scope and entitlement of company benefits.
• Nominal Damages: Petitioners added that since respondent failed to satisfy the requirements of due process, the Court of Appeals erred when it deleted the nominal damages awarded by the National Labor Relations Commission to petitioners.
• Reply on Requisites: In their Reply, petitioners reiterated that their dismissal due to alleged redundancy cannot be considered as an authorized and valid cause for dismissal as the abolition of the division of guest house workers was merely a ploy for the company to convert their regular employees to contractual employees. They added that even if they were dismissed for a valid cause, respondent was not able to comply with the requisites of a valid redundancy program since no written notices were served on petitioners and the company did not implement a fair and reasonable criteria in determining the redundant positions.

• Business Losses and Right-Sizing: Respondent asserted that the company was forced to adopt a "re-engineering" or "right-sizing" program as early as 2004 due to financial losses which entailed the abolition of divisions unnecessary to their core business. It asserted that the company first offered early retirement packages to affected employees before phasing out the division.
• Notice and Service: Respondent added that petitioners cannot claim that they were not notified of their termination as the letters offering early retirement were personally sent to them on July 23, 2007, but they refused to receive them. The company then attempted to send the letters through registered mail; however, only petitioner Dejan received it while the rest were returned for being "unclaimed." Respondent added that other than these attempts, petitioners were likewise personally informed of their termination and were offered early retirement packages in two separate occasions. Due to petitioners' constant refusal to avail of the early retirement packages, respondent sent letters notifying them of their retrenchment but these were again refused; thus, respondent instead sent the notices through registered mail. Respondent likewise sent a notice with an Establishment Termination Report to the Department of Labor and Employment.
• Non-Essential Functions: Respondent maintained that the functions of petitioners were foreign and unnecessary to the business of a sugar mill. It added that while the guest houses were still operating, these were maintained by the resident manager who personally hired and paid the new employees.
• Management Prerogative: Respondent stated that the abolition of certain departments in their company was a proper exercise of their management prerogative.

• Validity of Dismissal Due to Redundancy: Whether respondent Central Azucarera de La Carlota, Inc. validly dismissed petitioners Marcos Antonio Morales, Georgina D. Tribujenia, Cicero A. Cajurao, and Noli A. Dejan on the ground of redundancy.
• Procedural Due Process: Whether respondent Central Azucarera de La Carlota, Inc. complied with the procedural due process requirements for authorized cause of dismissal.

• Validity of Dismissal Due to Redundancy: Yes. The dismissal was valid; respondent proved business losses and that the guest house positions were not essential to its core sugar milling business, satisfying the substantial requirements of good faith and fair and reasonable criteria under Article 298 of the Labor Code and Asian Alcohol Corporation vs. National Labor Relations Commission.
• Procedural Due Process: Yes, substantially. Although unsuccessful delivery via registered mail alone would not suffice, repeated personal attempts, the employees' refusal to receive notice, service on the Department of Labor and Employment, and actual verbal notice constituted substantial compliance; no nominal damages were due.

• Validity of Dismissal Due to Redundancy: Redundancy is an authorized cause under Article 298 of the Labor Code, as amended, and is a valid exercise of management prerogative, but the employer bears the burden of proving compliance with the requisites in Asian Alcohol Corporation vs. National Labor Relations Commission: (1) written notice served on both the employees and the Department of Labor and Employment 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. Respondent presented audited financial statements prepared by Isla Lipana Co. from 2005 to 2007 showing a loss of P55,355,905.00 in 2005, a profit of P21,442,317.00 in 2006, and a loss of P28,445,914.00 in 2007; these losses and the volatile sugar market prompted a restructuring. The guest houses were used as the resident manager's residence and temporary housing for transient workers; their operation was not necessary to the core sugar milling business but a mere convenience, and maintaining them did not affect sugar production or distribution. The task of maintaining the guest house was delegated to those residing there, so petitioners' positions were superfluous. The plan to re-hire petitioners through Central La Carlota Multi-Purpose Cooperative was not a scheme because the cooperative is a separate and distinct entity. Petitioners' claim that respondent regularized contractual employees was misplaced; the regularized employees held positions directly related to sugar processing, showing fair and reasonable criteria. Although the parties were silent on seniority or efficiency, it was enough that the positions were redundant and unnecessary. The Court of Appeals did not commit grave abuse of discretion in upholding the redundancy program.
• Procedural Due Process: Article 298 requires written notice on both the employees and the Department of Labor and Employment one month prior to the intended termination. The Court agreed that unsuccessful delivery of the written notice via registered mail alone would not suffice, but found substantial compliance based on respondent's multiple attempts. The Court of Appeals found that respondent attempted personal service of notices dated July 23, 2007 and August 21, 2007 on two separate occasions, but petitioners refused them; respondent then sent the notices through registered mail, which the post office of La Carlota City attempted to serve three times but the letters remained unclaimed. A written notice of termination and an Establishment Termination Report were served on the Department of Labor and Employment. Under Sangwoo Philippines, Inc. vs. Sangwoo Philippines, Inc. Employees Union-OLALIA, the employee has a personal right to be informed, and posting notices is not enough; individually addressed notice is proper. Here, the purpose of the notice requirement was fulfilled because employees were informed as early as July 2007, refused to receive the notice, and were informed again in August 2007. Respondent cannot be faulted for petitioners' refusal to accept the letters; it would be absurd to keep employees aboard due to their refusal and unreasonable to sanction respondent when petitioners made service impossible. Petitioners themselves admitted in their Petition that in August 2007 Jose Parcon announced in a meeting that their positions were redundant, that their employment would be terminated effective September 21, 2007, and that they would receive separation pay. The verbal announcement coupled with multiple attempts to serve written notice was sufficient compliance. Thus, no nominal damages were due, but petitioners are entitled to separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher.

• 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; a position is redundant where it is superfluous. The employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business. It is a valid exercise of management prerogative, but the employer bears the burden of proving compliance with the requirements of law and jurisprudence. The Court applied this to uphold the dismissal of guest house workers whose tasks were not essential to the core sugar milling business.
• Requisites for a Valid Redundancy Program — Under Asian Alcohol Corporation vs. National Labor Relations Commission, the employer must comply with: (1) written notice served on both the employees and the Department of Labor and Employment 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 found the substantial requisites satisfied by respondent's business losses, non-core guest house functions, and fair criteria.
• Substantial Compliance with Procedural Due Process in Redundancy — Although unsuccessful delivery of a written notice via registered mail alone will not suffice, repeated attempts to serve the notice personally and through registered mail, the employees' refusal to receive it, service on the Department of Labor and Employment, and actual verbal notice may constitute substantial compliance. The employer cannot be faulted where the employees themselves made service impossible. The Court applied this to deny nominal damages.
• Management Prerogative — Termination due to redundancy is a matter well within management's prerogative, as the employer is in the best position to know who among its employees are necessary for the furtherance of its business. This prerogative is not absolute; it must comply with the requisites for a valid redundancy program. The Court upheld respondent's right-sizing program as a valid exercise of this prerogative.
• Rule 45 Review in Labor Cases — A petition for review on certiorari under Rule 45 is limited to questions of law. In labor cases, the review is limited to whether the Court of Appeals correctly determined the presence or absence of grave abuse of discretion and other jurisdictional errors of the National Labor Relations Commission, not whether the NLRC was correct on the merits. The Court used this standard in denying the petition.

• "For the implementation of a redundancy program to be valid, the employer must comply with the following requisites: (1) written notice served on both the employees and the Department of Labor and Employment 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." — This passage, quoted from Asian Alcohol Corporation vs. National Labor Relations Commission, states the requisites for a valid redundancy program that the Court applied.
• "While this Court agrees that the unsuccessful delivery of the written notice via registered mail will not suffice as compliance with the procedural due process rules, respondent's attempts to serve the written notice multiple times, personally and through registered mail, are substantial compliance with the requirement." — This passage states the ratio on procedural due process.
• "The employer has no legal obligation to keep in its payroll more employees than are necessary for the operation of its business." — This passage, quoted from Wiltshire File Company, Inc. vs. National Labor Relations Commission, encapsulates the management prerogative and redundancy principle.
• "Respondent's verbal announcement of petitioners' dismissal, coupled with their multiple attempts to serve a written notice, is sufficient compliance with procedural due process requirements." — This passage is the Court's specific holding on substantial compliance.

• Manggagawa ng Komunikasyon sa Pilipinas vs. Philippine Long Distance Telephone Company, Inc., 809 Phil. 106 (2017) — Cited for the parameters of judicial review in a Rule 45 petition, particularly that review is limited to questions of law and, in labor cases, to whether the Court of Appeals correctly determined grave abuse of discretion in the NLRC.
• Asian Alcohol Corporation vs. National Labor Relations Commission, 364 Phil. 912 (1999) — Enumerated the four requisites for a valid redundancy program; applied by the Court in upholding the dismissal.
• Wiltshire File Company, Inc. vs. National Labor Relations Commission, 271 Phil. 694 (1991) — Defined redundancy and affirmed that the employer has no legal obligation to keep more employees than necessary; cited to support management prerogative.
• Sangwoo Philippines, Inc. vs. Sangwoo Philippines, Inc. Employees Union-OLALIA, 722 Phil. 846 (2013) — Explained the notice requirement for authorized-cause dismissal, including the personal right of employees to be informed and the insufficiency of posting; cited in the procedural due process analysis.
• Acosta vs. Matiere SAS, G.R. No. 232870, June 3, 2019 — Cited for the recognition of redundancy as an authorized cause for termination.
• Philippine Airlines, Inc. vs. Dawal, 781 Phil. 474 (2016) — Cited for the rule that the employer bears the burden of proving that the dismissal complied with the requirements of law and jurisprudence.
• Panlilio vs. National Labor Relations Commission, 346 Phil. 30 (1997) — Cited in connection with the consideration of seniority or efficiency in redundancy; the Court noted the parties' silence on this point but found the positions redundant.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2017) — Cited for the imposition of 6% legal interest per annum on the total judgment award from finality until full satisfaction.

• Article 298 (formerly Article 283), Labor Code, as amended — Authorizes termination of employment due to redundancy, among other causes, and requires service of written notice on the workers and the Department of Labor and Employment at least one month before the intended date. It also entitles the affected worker to separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher. The Court applied this provision to uphold the redundancy dismissal and order separation pay.
• Rule 45, Rules of Court — Provides that a petition for review on certiorari shall raise only questions of law. In labor cases, the Court limited its review to whether the Court of Appeals correctly determined the presence or absence of grave abuse of discretion and other jurisdictional errors of the NLRC. This framed the Court's denial of the petition.
• Rule 65, Rules of Court — The mode by which Morales et al. challenged the NLRC Resolution before the Court of Appeals. The Court noted that the Court of Appeals undertook a Rule 65 review, not a review on appeal, of the NLRC decision.

Lazaro-Javier, M. Lopez, Marquez, and Kho, Jr., JJ., concur. Marquez was designated as an additional Member per Raffle dated September 27, 2022.