REDUNDANCY DUE TO OUTSOURCING/ABOLITION OF POSITION (LABOR CASE DIGEST No. 2)

Manifesting its disappointing behavior again, at least from the employees’ point of view, the Supreme Court of the Philippines upheld another decision of lower appellate courts as regards the controversial “management prerogative”. In SMART Communications, Inc. vs. Regina M. Astorga, with G.R. No. 148132, the high court ruled that Regina Astorga, a former District Sales Manager of the Corporate Sales Marketing Group/Fixed Services Division (CSMG/FSD) of Smart Communications, Inc. (SMART), was validly terminated due to redundancy, which is an authorized cause for the dismissal of an employee.

Background

Grievance, Mediation, Arbitration and Appeals

Regina was employed by Smart Communications, Inc. (SMART) as District Sales Manager of the Corporate Sales Marketing Group/ Fixed Services Division (CSMG/FSD) on May 8, 1997.

SMART launched an organizational realignment to achieve more efficient operations. Part of the reorganization was the outsourcing of the marketing and sales force. Thus, SMART entered into a joint venture agreement with NTT of Japan, and formed SMART-NTT Multimedia, Incorporated (SNMI). Since SNMI was formed to do the sales and marketing work, SMART abolished the CSMG/FSD, Regina’s division.

To soften the blow of the realignment, SNMI agreed to absorb the CSMG personnel who garnered the highest ratings and who were favorably recommended to SNMI. Regina landed last in the performance evaluation, thus, she was not recommended by SMART. SMART, nonetheless, offered her a supervisory position in the Customer Care Department, but she refused the offer because the position carried lower salary rank and rate. Despite the abolition of her division, she continued reporting for work until SMART issued a memorandum March 3, 1998 advising Regina of the termination of her employment on ground of redundancy.

Regina filed a complaint for illegal dismissal contending that SMART cannot lawfully contract out services which will displace the employees, especially if the contractor is an in-house agency. She claimed that abolishing CSMG, thereby terminating her employment, was illegal because it violated her right to security of tenure. SMART responded that Regina was validly dismissed by reason of redundancy, an authorized cause for termination of employment under Article 283 of the Labor Code. The redundancy of Regina’s position was the result of the abolition of CSMG and the creation of a specialized and more technically equipped SNMI, which is a valid and legitimate exercise of “management prerogative.”

LABOR ARBITER”S DECISION:

The Labor Arbiter (LA) declared Regina’s dismissal illegal. While recognizing SMART’s right to abolish any of its departments, the Labor Arbiter held that such right should be exercised in good faith and for causes beyond its control. The Arbiter found the abolition of CSMG done neither in good faith nor for causes beyond the control of SMART, but a ploy to terminate Regina’s employment. The Arbiter also ruled that contracting out the functions performed by Regina to an in-house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the Rules Implementing the Labor Code. Accordingly, the Labor Arbiter ordered Regina’s reinstatement to her former position, without loss of seniority rights and other privileges, with full backwages, inclusive of all allowances and other benefits from the time of her dismissal to the date of reinstatement.

NLRC DECISION:

SMART appealed the unfavorable ruling of the LA in the illegal dismissal case to the National Labor Relations Commission (NLRC). The NLRC reversed the LA decision and sustained Regina’s dismissal. The NLRC declared the abolition of CSMG and the creation of SNMI to do the sales and marketing services for SMART a valid organizational action, i.e. a management prerogative. It also declared that contracting, subcontracting and streamlining of operations for the purpose of increasing efficiency are allowed under the law. The NLRC further found erroneous the Labor Arbiter’s disquisition that redundancy to be valid must be impelled by economic reasons, and upheld the redundancy measures undertaken by SMART. Regina appealed but her action was denied by the NLRC on December 21, 1999.

COURT OF APPEALS DECISION:

Regina then appealed the NLRC decision to the Court of Appeals via certiorari. The CA affirmed the NLRC resolutions that SMART’s reorganization resulting in the abolition of CSMG was a legitimate exercise of “management prerogative.” It rejected Regina’s posturing that her non-absorption into SNMI was tainted with bad faith. However, the CA found that SMART failed to comply with the mandatory one-month notice prior to the intended termination and is thus obliged to pay the petitioner an equivalent of her one-month salary.

SUPREME COURT RULING:

Regina was validly terminated due to redundancy, an authorized cause for the dismissal of an employee. The characterization of an employee’s services as superfluous or no longer necessary and, therefore, properly terminable, is an exercise of business judgment on the part of the employer. The wisdom and soundness of such characterization or decision is not subject to discretionary review provided, of course, that a violation of law or arbitrary or malicious action is not shown.

An employer is not precluded from adopting a new policy conducive to a more economical and effective management even if it is not experiencing economic reverses. Neither does the law require that the employer should suffer financial losses before he can terminate the services of the employee on the ground of redundancy.

The organizational realignment introduced by SMART, which culminated in the abolition of CSMG/FSD and termination of Regina’s employment was an honest effort to make SMART’s sales and marketing departments more efficient and competitive.

“It is the prerogative of the employer to adopt such measures as will promote greater efficiency, reduce overhead costs and enhance prospects of economic gains, albeit always within the framework of existing laws. Accordingly, we sustain the reorganization and redundancy program undertaken by SMART.”

However, SMART failed to comply with the one-month notice prior to termination. The record is clear that Regina received the notice of termination only on March 16, 1998 or less than a month prior to its effectivity on April 3, 1998. Likewise, the Department of Labor and Employment was notified of the redundancy program only on March 6, 1998.

SMART’s assertion that Regina cannot complain of lack of notice because the organizational realignment was made known to all the employees as early as February 1998 fails to sway. Regina’s actual knowledge of the reorganization cannot replace the formal and written notice required by the law. Notwithstanding her knowledge of the reorganization, she remained uncertain about the status of her employment until SMART gave her formal notice of termination.

The SC also ruled that it is proper to increase the amount of the penalty on SMART to P50,000.00. However, the award of backwages to Regina by the CA should be deleted for lack of basis. Backwages is a relief given to an illegally dismissed employee. Since her dismissal is for an authorized cause, Regina is not entitled to backwages. The CA’s award of backwages is totally inconsistent with its finding of valid dismissal.

COMMENT:

Based on existing laws and prior decisions such as in DAP vs. CA and Jaka Food Processing Corporation v. Pacot, the SC decided on yet another landmark decision as regards the so-called “management prerogative” largely in favor of an employer. In SMART Communications, Inc. vs. Regina M. Astorga, the employer’s “management prerogatives” is reemphasized as another reason, or perhaps excuse, for firing employees. Although, it is clear that, as provided for by Article 283 of the Labor Code, closure of establishment and reduction of personnel is allowed to the extent that the employer may terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof, SMART cannot automatically terminate employees after any means directed to satisfy its profit motive. While such prerogatives must be exercised in good faith and in accordance with law and jurisprudence, in effect, large companies, corporations and other business establishments may have the tendency to terminate employment contracts in direct disregard of the security of tenure clause of Art. XIII, Sec. 3 of the Philippine Constitution by issuing memoranda and notices that do not serve as the equivalent of formal notice of termination. The decision has shown that an employee, such as Regina, may lawfully lose his employment even if he/she is not at fault.

The SC ruling is another reflection of SC’s tendency to back up government schemes of establishing an investment-friendly climate in the Philippines. Despite the fact that the SC categorically denies allegations that it bypasses the executive and legislative branches of the government by instituting an investment-friendly jurisprudence, it is somewhat clear that the Labor movement in the Philippines can expect more and more SC decisions that incline towards investors and businessmen. Although the high court is not considered institutionally as a policy-making body of the government, jurisprudence and matters arising from the decisions of the Supreme Court translate to the creation of alternative, if not new, economic policies. The SC seems to tread the economic road to the detriment of workers’ rights.

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