Philippine Tobacco Flue-Curing & Redrying Corporation vs. NLRC

Article 283 of the Labor Code applies to both the complete cessation of operations and the cessation of only part of a company's business, and an employer invoking "serious business losses" to escape liability for separation pay must prove such losses with sufficient and convincing evidence; seasonal workers, moreover, are not separated from service during the off-season but are merely on leave without pay until reemployed.

Philippine Tobacco Flue-Curing & Redrying Corporation operated a tobacco processing and redrying plant at Balintawak, Quezon City, and was likewise engaged in corn and rental operations. Its workforce consisted largely of seasonal workers hired during the tobacco season, which fell within the months of February to November, and who worked for less than six months in each season. Article 283 of the Labor Code governs the requisites and procedure for termination of employment arising from the closure or cessation of an establishment, and permits an employer to avoid separation pay only where the closure is due to serious business losses or financial reverses.

The dispute concerned two groups of seasonal workers of Philippine Tobacco Flue-Curing & Redrying Corporation, both claiming separation benefits following the closure of its Balintawak plant and the transfer of its tobacco operations to Candon, Ilocos Sur. The Lubat group consisted of seasonal employees who were not rehired for the 1994 tobacco season; at the start of that season they were merely informed that their employment had been terminated at the end of the 1993 season. The Luris group was composed of seasonal employees who had worked during the 1994 season.

On August 1, 1994, petitioner served on the Department of Labor and Employment a notice of permanent closure of its redrying operations at Balintawak, Quezon City, and the transfer of the same to Candon, Ilocos Sur, citing serious financial reverses and losses and its desire to prevent further losses. On August 3, 1994, the complainants were likewise notified of the decision to close and transfer. Although the closure was to take effect on September 15, 1994, the employees were no longer allowed to work beginning August 4, 1994. On August 16, 1994, separation benefits were given to the Luris group, but allegedly on a wrong computation, because management did not consider three-fourths of their length of service as claimed. The Lubat group was not granted separation pay on the ground that its previous seasonal service was not continuous and that, as of August 1994, its members were not employed with petitioner.

According to petitioner, the Lubat group was not among those separated or who could have been separated from employment on August 3, 1994, because they were not employed or did not report for work at the plant for the 1994 tobacco season, as shown by company records. As to the Luris group, petitioner considered fair and reasonable a formula computing length of service as the total number of working days actually worked over the total number of working days in a year (303 days), multiplied by the daily rate and further multiplied by 15 days, reasoning that the workers' nature of work was seasonal and that the law qualified tenure for separation benefits as based on "service" and not "employment." Petitioner maintained that the closure and transfer were authorized by law and by the parties' collective bargaining agreement, that the decision was grounded on consistent net losses from its principal line of business, and that the one-month written notice to the Luris group and the DOLE satisfied due process.

The Lubat group, for its part, alleged that as seasonal workers they were hired to operate the Balintawak factory from January to September, averaging six to eight months annually; that when they reported for their annual shift, petitioner refused to extend them any assignment for no apparent reason up to the end of the season in August 1994; and that when they asked for separation pay, petitioner told them that because they were not on the payroll for 1994, no such benefit would be paid. They contended that they were entitled to separation pay of at least one-half month pay for every year of service, to be computed by treating each season of six to eight months as one year, contrary to petitioner's basis of total days actually rendered. They invoked the rule that seasonal employees are not strictly separated from service but merely considered on leave of absence without pay until reemployed.

The Luris group claimed that on August 3, 1994, petitioner told them that their services were terminated and that all of them were dismissed because the factory would be transferred to Candon, Ilocos Sur. They pointed to letter-notices dated August 3, 1994, which showed that the date of notification was the same date they were instantly dismissed, although the notice admitted that the decision to transfer had been made as early as March 5, 1994. They questioned the computation of their separation benefits, which they claimed should include the period when there was no work to be done in a year; because of necessity they received the reduced amount by voucher but "under protest." They further maintained that since the company was being transferred to the province, their separation could be considered compulsory retirement under R.A. 7641, providing one-half month pay for every year of service, and under Section 3, Rule V, Book III of the Labor Code, as amended.

The labor arbiter found that the closure of the Balintawak operations and the transfer to Ilocos Sur were due to serious financial losses, yet held both groups entitled to separation pay equivalent to one-half month salary for every year of service, provided the employee worked at least one month in a given year; the NLRC affirmed, adding that private respondents were not entitled to back wages and damages since the closure and termination were due to a legally recognized cause.

• Serious Business Losses: Petitioner argued that it had submitted a Statement of Income and Expenses and a recasted version thereof showing serious business losses in its tobacco processing and redrying operations, and that under Article 283 of the Labor Code it was therefore not obligated to award separation pay to its dismissed workers, whether belonging to the Lubat or the Luris group, because the closure was due to an authorized cause.
• Compliance with Procedural Requirements: Petitioner maintained that it filed a Petition for Closure with the DOLE on August 2, 1994, and sent letters to its employees on August 3, 1994 informing them of its desire to close its tobacco operations in Balintawak effective September 15, 1994, thereby satisfying the procedural requisites; any separation pay it did award was solely out of generosity and not out of legal duty.
• Lubat Group Not in Employment: Petitioner contended that the Lubat group workers were not entitled to separation pay because they were not employed with petitioner at the time of the closure, their employment having legally ended upon completion of the 1993 season, and that it was not obliged to rehire them for the 1994 season.
• No Liability Beyond Amounts Already Paid: Petitioner asserted that even assuming the Luris group was entitled to separation pay, it could not be legally compelled to pay more than the amounts already given to the said group, and that the separation pay of a seasonal worker who works only a fraction of a year should not be equated with that of a regular worker, proposing a formula based on total days actually worked over 303 working days in one year.

• Seasonal Workers Not Separated from Service: Private respondents contended that seasonal employees are not strictly speaking separated from the service but are merely considered on leave of absence without pay until reemployed, their employment relationship being never severed but only suspended, and that they were therefore entitled to separation pay of at least one-half month pay for every year of service, with each season of six to eight months considered as one year.
• Illegal Dismissal and Defective Notice: The Luris group maintained that they were illegally dismissed, the letter-notices dated August 3, 1994 showing that the date they were notified of the closure was the same date they were instantly dismissed, although the notice admitted that the decision to transfer was made as early as March 5, 1994; they also prayed for backwages, allowances, and other benefits from the date of their illegal dismissal up to final disposition.
• Erroneous Computation of Separation Pay: Private respondents argued that the computation adopted by petitioner was erroneous and that their separation pay should be based on the actual number of years they had been in petitioner's service, invoking the law on service incentive leave, the implementing rules on 13th month pay, Manila Hotel vs. CIR, and Chartered Bank vs. Ople.
• Compulsory Retirement and Damages: The Luris group maintained that since the company was being transferred to the province, their separation could be considered compulsory retirement under R.A. 7641, providing one-half month pay for every year of service, and under Section 3, Rule V, Book III of the Labor Code, as amended; they also claimed damages and attorney's fees for the serious anxiety and wounded feelings they suffered.

• Serious Business Losses: Whether petitioner proved "serious business losses" as its justification for the nonpayment of separation pay.
• Validity of Dismissal: Whether the dismissal of the employees was valid.
• Computation of Separation Pay: How the separation pay of illegally dismissed seasonal employees should be computed.

• Serious Business Losses: No. Petitioner failed to establish serious financial losses from its tobacco operations, its recasted financial statement having improperly charged all selling, administrative, and interest expenses against the tobacco business alone, and its notice of closure having been defective for failing to observe the one-month prior notice requirement under Article 283 of the Labor Code.
• Validity of Dismissal: No, as to the Lubat group. Petitioner illegally dismissed the members of the Lubat group when it refused to allow them to work during the 1994 season, since seasonal workers are not separated from service during the off-season but are merely on leave without pay until reemployed.
• Computation of Separation Pay: Separation pay is equivalent to one month pay, or to one-half month pay for every year of service, whichever is higher, provided the employee rendered at least six months of service in a given year, applying the rule in Articles 283 and 284 that a fraction of at least six months shall be considered one whole year.

• Serious Business Losses: Article 283 of the Labor Code permits an employer to terminate employment due to closure or cessation of operations not due to serious business losses or financial reverses, in which case separation pay is equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, with a fraction of at least six months considered one whole year. Following Coca-Cola Bottlers (Phil.), Inc. vs. NLRC, the provision applies to both complete and partial cessation of business, and the present case involved the closure of merely a unit or division of an otherwise viable enterprise, petitioner having remained engaged in corn and rental operations unaffected by the Balintawak closure. Under the standard in Somerville Stainless Steel Corporation vs. NLRC, the loss must be substantial and not merely de minimis, reasonably imminent, reasonably necessary to prevent the expected losses, and proved by sufficient and convincing evidence. Petitioner failed this standard: its recasted Statement of Income and Expenses subtracted all selling, administrative, and interest expenses for a given year from the earnings of its tobacco sales for the corresponding year, effectively charging against the tobacco operations alone the operating costs pertaining to all of petitioner's businesses, even though the Statement of Income and Expenses showed a net gain from operations in each year covered and showed that selling and administrative expenses pertained also to corn and rental operations and interest expenses to all business operations. An audited financial statement is the normal method of proof, but the Court is not compelled to accept its contents blindly, and the documents failed to show serious losses from tobacco operations sufficient to justify termination without separation pay. The notice of closure was likewise defective: although the Notices of Termination were given on August 3, 1994 and the intended closure date was September 15, 1994, the employees were in fact not allowed to work after August 3, 1994, in violation of the one-month prior notice requirement; petitioner's claim that the tobacco season was about to end was without merit because the law provides without qualification for one-month notice, and petitioner could easily have complied since the decision to cease tobacco operations was made as early as March 5, 1994. Accordingly, the Luris group was entitled to separation pay under the last two sentences of Article 283.
• Validity of Dismissal: Petitioner relied on Mercado vs. NLRC for the proposition that the employment of seasonal employees legally ends upon completion of the season, reiterated in Magcalas vs. NLRC, and argued that it was not obliged to rehire the Lubat group for the 1994 season. The Court was not persuaded. In Manila Hotel Company vs. CIR, echoed in Industrial-Commercial-Agricultural Workers' Organization (ICAWO) vs. CIR and Visayan Stevedore Transportation Company vs. CIR, the Court held that seasonal workers called to work from time to time and temporarily laid off during the off-season are not separated from service but are merely considered on leave of absence without pay until reemployed. This doctrine was reiterated in Tacloban Sagkahan Rice and Corn Mills Co. vs. NLRC in 1990, after the Labor Code took effect, and in Bacolod-Murcia Milling Co., Inc. vs. NLRC the Court considered a seasonal worker "in regular employment" in cases involving the determination of an employer-employee relationship and security of tenure; in Gaco vs. NLRC, a seasonal worker repeatedly rehired in a similar tobacco business was held a regular employee by operation of law and entitled to separation pay for constructive dismissal. There is no clear conflict between the doctrine and Article 280 of the Labor Code. The facts in Mercado and Magcalas are different: in Mercado, the workers performed different phases of agricultural work and were free to work for other farm owners, and in fact did, making them project employees whose employment ended upon completion of each project; in Magcalas, the Court merely cited the ruling to explain the difference among regular, project, and seasonal employees and in fact concluded that the employees therein were regular. The ponente in Mercado concurred in Gaco awarding separation pay for every year of service. Consequently, the employer-employee relationship between petitioner and the Lubat group was not terminated at the end of the 1993 season; from the end of the 1993 season until the beginning of the 1994 season, they were considered only on leave but nevertheless still in petitioner's employ. Petitioner is therefore liable for illegal dismissal and should be responsible for reinstatement and back wages; since reinstatement is no longer possible because the Balintawak plant has closed, the Lubat group should instead be awarded normal separation pay in lieu of reinstatement, equivalent to at least one month pay, or one month pay for every year of service, whichever is higher, which is distinct from the separation pay under Article 283. However, because the Lubat group did not appeal the NLRC Decision, no affirmative award beyond what the NLRC granted could be given to them, and no back wages could be awarded, the elementary norms of due process preventing the grant of relief that would place the employer in jeopardy without notice upon its own filing of the Petition for Certiorari.
• Computation of Separation Pay: The amount of separation pay is based on two factors: the amount of monthly salary and the number of years of service. Although the Labor Code provides different definitions of "one year of service," Book Six does not specifically define it for purposes of computing separation pay; however, Articles 283 and 284 both state that a fraction of at least six months shall be considered one whole year. Applying this, the amount of separation pay which the Lubat and Luris groups should receive is one-half of their respective average monthly pay during the last season they worked multiplied by the number of years they actually rendered service, provided that they worked for at least six months during a given year. The formula proposed by petitioner, equating a year of work to actual work rendered for 303 days, is both unfair and inapplicable, because under Articles 283 and 284 an employee who worked only six months in a given year — certainly less than 303 days — is considered to have worked one whole year. Chartered Bank vs. Ople, cited by private respondents, does not support their cause, as it ruled that regular workers and those paid by the month are both entitled to holiday pay; the law on service incentive leave pay does not necessarily apply to retirement benefits or separation pay; and the provision on 13th month pay is not applicable to separation pay, since an employee who worked for a single month in a year is entitled to a 13th month pay equivalent to only 1/12 of his or her monthly salary. Manila Hotel Company vs. CIR did not rule that seasonal workers are considered at work during the off-season for purposes of computing separation pay; it merely held that the employer-employee relationship is not severed during the off-season but merely suspended.

• Article 283 applies to both complete and partial cessation of operations — The statutory provision on closure of establishment and reduction of personnel governs not only the complete cessation of a company's business but also the cessation of only part of its operations. The Court applied this doctrine because petitioner closed merely its Balintawak tobacco processing and redrying unit while continuing its corn and rental operations, so that Article 283 remained the controlling law.
• Requisites for valid retrenchment or closure due to losses — To justify termination of employment on the ground of business losses, the employer must show that: (1) the losses expected are substantial and not merely de minimis; (2) the substantial loss apprehended is reasonably imminent, perceived objectively and in good faith by the employer; (3) retrenchment is reasonably necessary and likely to effectively prevent the expected losses, the employer having taken other measures prior or parallel to retrenchment to forestall losses, such as cutting costs other than labor costs; and (4) the alleged realized losses and the expected imminent losses sought to be forestalled are proved by sufficient and convincing evidence. The Court found petitioner's recasted financial statements and defective notice insufficient to satisfy these requisites.
• Serious business losses must be proved by sufficient and convincing evidence — An audited financial statement is the normal method of proof of profit and loss, but the Court is not compelled to accept its contents blindly. Where the recasted statement charged against one business unit all corporate expenses pertaining to the employer's other profit centers, the document failed to establish serious losses justifying termination without separation pay.
• One-month prior notice of closure — Article 283 requires the employer to furnish both the employee and the Department of Labor and Employment a written notice of closure at least one month prior to the intended date of closure, without qualification. The requirement was violated where employees were barred from work on the very date of the notice even though the stated effectivity date was one month later.
• Seasonal workers are merely on leave during the off-season — Seasonal workers who are called to work from time to time and are temporarily laid off during the off-season are not separated from service during that period but are merely considered on leave of absence without pay until reemployed; their employment relationship is never severed but only suspended. The Court applied this doctrine to hold that petitioner illegally dismissed the Lubat group when it refused to allow them to work during the 1994 season, the employer-employee relationship not having been terminated at the end of the 1993 season.
• Repeatedly rehired seasonal workers become regular employees — A seasonal worker repeatedly rehired over a long period sufficiently evidences the necessity and indispensability of his or her services to the employer's business, and by operation of law becomes a regular employee one year after employment. The Court cited this doctrine in finding the Lubat group entitled to the protection of security of tenure.
• Computation of separation pay for seasonal workers — Separation pay is equivalent to one month pay, or to one-half month pay for every year of service, whichever is higher, provided the employee rendered at least six months of service in a given year, applying the rule in Articles 283 and 284 that a fraction of at least six months shall be considered one whole year. "Month pay" is understood as the average monthly pay during the last season the employee worked.
• No affirmative relief for a party who did not appeal — Elementary norms of due process prevent the grant of affirmative relief, such as additional separation pay or back wages, to a party who did not appeal, because the opposing party was not given notice that its own petition would place it in jeopardy of such relief.

• "The applicable law in such a case is Article 283 of the Labor Code which permits 'closure or cessation of operation of an establishment or undertaking not due to serious business losses or financial reverses,' which, in our reading, includes both the complete cessation of operations and the cessation of only part of a company's business." — This passage, quoted from Coca-Cola Bottlers (Phil.), Inc. vs. NLRC, states the ratio for applying Article 283 to the partial closure of petitioner's Balintawak tobacco operations notwithstanding its continuing corn and rental businesses.
• "The nature of their relationship . . . is such that during off season they are temporarily laid off but during summer season they are re-employed, or when their services may be needed. They are not strictly speaking separated from the service but are merely considered as on leave of absence without pay until they are re-employed." — Quoted from Manila Hotel Company vs. CIR, this is the canonical formulation of the doctrine that seasonal workers are merely on leave during the off-season, which the Court used to hold that the Lubat group was illegally dismissed.
• "An audited financial statement is indeed the normal method of proof. But this norm does not compel this Court to accept the contents of the said documents blindly and without thinking." — This passage defines the evidentiary standard governing financial statements offered to prove serious business losses, and explains why the Court rejected petitioner's recasted Statement of Income and Expenses.
• "the amount of separation pay which respondent members of the Lubat and Luris groups should receive is one-half (1/2) their respective average monthly pay during the last season they worked multiplied by the number of years they actually rendered service, provided that they worked for at least six months during a given year." — This is the operative computation formula for the separation pay of seasonal workers, applying the six-month fraction rule of Articles 283 and 284 of the Labor Code.

• Coca-Cola Bottlers (Phil.), Inc. vs. NLRC, 194 SCRA 592 (1991) — Controlling precedent for the rule that Article 283 of the Labor Code applies to both the complete cessation of operations and the cessation of only part of a company's business; quoted and followed.
• Somerville Stainless Steel Corporation vs. NLRC, G.R. No. 125887 (1998) — Source of the four-part standard for justifying retrenchment or closure due to losses, including the requirement that losses be proved by sufficient and convincing evidence; quoted and applied.
• Lopez vs. Federation of Free Workers, 189 SCRA 179 (1990) — Cited within Somerville for the requisites of valid retrenchment; relied upon indirectly through the Somerville standard.
• Manila Hotel Company vs. CIR, 9 SCRA 184 (1963) — Controlling precedent for the doctrine that seasonal workers are not separated from service during the off-season but are merely on leave without pay until reemployed; followed and distinguished from the computation of separation pay.
• Industrial-Commercial-Agricultural Workers' Organization (ICAWO) vs. CIR, 16 SCRA 562 (1966) — Echoed the Manila Hotel doctrine on seasonal employment; followed.
• Visayan Stevedore Transportation Company vs. CIR, 19 SCRA 426 (1967) — Echoed the Manila Hotel doctrine on seasonal employment; followed.
• Tacloban Sagkahan Rice and Corn Mills Co. vs. NLRC, 183 SCRA 425 (1990) — Reiterated the Manila Hotel doctrine after the effectivity of the Labor Code, refuting petitioner's claim that Article 280 superseded it; followed.
• Bacolod-Murcia Milling Co., Inc. vs. NLRC, 204 SCRA 155 (1991) — Held that a seasonal worker may be considered in regular employment in cases involving the determination of an employer-employee relationship and security of tenure; followed.
• Gaco vs. NLRC, 230 SCRA 260 (1994) — Held a repeatedly rehired seasonal worker in a tobacco business to be a regular employee by operation of law and entitled to separation pay for constructive dismissal; followed.
• Mercado vs. NLRC, 201 SCRA 332 (1991) — Cited by petitioner for the proposition that the employment of seasonal employees legally ends upon completion of the season; distinguished on the ground that the workers therein were project employees free to work for other farm owners.
• Magcalas vs. NLRC, 269 SCRA 453 (1997) — Cited by petitioner for the same proposition; distinguished, the Court noting that it merely explained the difference among regular, project, and seasonal employees and in fact concluded that the employees therein were regular.
• Chartered Bank vs. Ople, 138 SCRA 273 (1985) — Cited by private respondents for their computation theory; distinguished, as it concerned holiday pay for regular and monthly-paid workers and does not govern separation pay.
• Paguio Transport vs. NLRC, G.R. No. 119500 (1998) — Cited for the rule that no affirmative award may be granted to a party who did not appeal the NLRC Decision; followed.

• Article 283, Labor Code — Governs closure of establishment and reduction of personnel. The Court applied it to hold that closure or cessation of operations not due to serious business losses entitles affected employees to separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, a fraction of at least six months being considered one whole year; the provision also supplied the one-month prior notice requirement found to have been violated.
• Article 284, Labor Code — Provides, in connection with separation pay, that a fraction of at least six months shall be considered one whole year; relied upon together with Article 283 in fixing the computation of separation pay for seasonal workers.
• Article 280, Labor Code — Cited by petitioner as having allegedly superseded the Manila Hotel doctrine on seasonal employment; the Court rejected the argument, finding no clear conflict between the doctrine and the provision.
• Section 3, Rule V, Book III, Rules Implementing the Labor Code — Invoked by private respondents on service incentive leave; the Court held that the law on service incentive leave pay does not necessarily apply to retirement benefits or separation pay.
• Presidential Decree No. 851 — The 13th month pay law, cited by private respondents; the Court held it inapplicable to separation pay, since an employee who worked for a single month in a year is entitled to a 13th month pay equivalent to only 1/12 of his or her monthly salary.
• Republic Act No. 7641 — Invoked by the Luris group as basis for treating their separation as compulsory retirement with one-half month pay for every year of service; noted in the narration of the parties' contentions.

Davide, Jr., C.J., Melo, Vitug and Quisumbing, JJ., concur.