The Supreme Court affirmed that a company’s unilateral and arbitrary reduction of employees’ working hours constitutes constructive dismissal. This decision emphasizes that employers must exercise their management prerogatives in good faith and with due regard for the rights of labor. Practically, this ruling protects employees from significant salary reductions disguised as cost-cutting measures and clarifies the circumstances under which such actions can be deemed illegal dismissal, entitling employees to separation pay and backwages.

When Cost-Cutting Cuts Too Deep: Did Reduced Hours Equal Dismissal?

In the case of Intec Cebu Inc. v. Rowena Reyes, et al., the central issue revolved around whether the reduction of working days by Intec Cebu Inc. constituted constructive dismissal of its employees. The employees argued that the reduction from six to two-four working days per week, due to alleged lack of job orders, effectively terminated their employment. They further contended that Intec hired contractual employees to perform their regular tasks, exacerbating the situation. Intec countered that the reduction was a necessary cost-cutting measure due to financial losses and declining job orders following the cessation of operations of Kenwood Precision Corporation, its primary client. This led to a legal battle over the legitimacy of the reduced work week and its impact on the employees’ job security and compensation.

The Court emphasized the principle that while management has the prerogative to regulate aspects of employment, this power is not absolute. It must be exercised in good faith and with due regard to the rights of labor. The Court cited Royal Plant Workers Union v. Coca-Cola Bottlers Philippines – Cebu Plant, stating that:

“management is free to regulate, according to its own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time, place, and manner of work, processes to be followed, supervision of workers, working regulations, transfer of employees, work supervision, lay-off of workers, and discipline, dismissal and recall of workers. The exercise of management prerogative, however, is not absolute as it must be exercised in good faith and with due regard to the rights of labor.”

Therefore, Intec had the burden to prove the validity and good faith of the reduced working days implementation. The Court found that Intec failed to adequately demonstrate the necessity and legitimacy of the reduction in working days. Although Intec presented two memoranda regarding the reduction, the first was submitted to the Department of Labor and Employment (DOLE) after its implementation. The second notice informing employees of the extension of reduced work days to June 2006 was not presented in the records. The Supreme Court emphasized the importance of timely and proper notification to the DOLE and the employees, especially when such measures affect their employment conditions.

Furthermore, Intec presented financial statements from 2001-2006 to demonstrate its financial losses. However, an examination of these statements revealed a net loss in 2005 but a net income in 2006. The Supreme Court noted that the financial statement for 2006 covered the period from May 2005 to April 2006, and the reduced work day scheme was only implemented in January 2006. Without evidence showing that the income for 2006 was earned exclusively between January and April, the Court presumed that Intec was still benefiting from its gains when the reduced work day scheme was implemented.

The Court also observed that the losses incurred in 2005 could be attributed to the acquisition of property and equipment. This acquisition, amounting to P9,218,967.00, suggested investment rather than financial distress. Critically, there was no indication in the financial statements or any observation by the independent auditor that a reduction in demand necessitated a reduction in employees’ workdays. Thus, the financial statements did not conclusively support Intec’s claim of financial losses justifying the reduction in work hours.

The Court scrutinized the evidence presented by Intec to prove a slump in demand, finding it lacking in specificity and credibility. The delivery data presented were prepared by Intec employees and lacked supporting documentation such as sales or delivery receipts. The Court noted that actual sales could vary from projected demand, rendering the report unreliable as a basis for a slowdown. Moreover, Intec’s hiring of 188 additional workers, whether trainees or casual employees, incurred costs to the company without proof that these workers performed different tasks from the regular employees.

The combination of these factors led the Court to conclude that there was no valid reason to implement a cost-cutting measure by reducing employees’ working days. Consequently, the Court affirmed the finding of constructive dismissal, defining it as occurring when continued employment becomes impossible, unreasonable, or unlikely due to cessation of work, demotion, diminution in pay, or unbearable discrimination by the employer. Intec’s unilateral and arbitrary reduction of the work day scheme significantly reduced the employees’ salaries, leading to constructive dismissal.

The Court dismissed Intec’s charge of abandonment against the employees. To establish abandonment, there must be clear proof of a deliberate and unjustified intent to sever the employer-employee relationship. The filing of a complaint for illegal dismissal is inconsistent with abandonment, indicating the employee’s desire to return to work, thus negating any suggestion of abandonment. The Court agreed with the Court of Appeals that there was no proof that the employees committed unauthorized absences or refused to work, reinforcing the finding of constructive dismissal.

Finally, the Court noted that Intec availed itself of the wrong mode of appeal. A petition for certiorari is only appropriate when a tribunal has acted without or in excess of jurisdiction, or with grave abuse of discretion, and there is no appeal or adequate remedy available. The Court found no grave abuse of discretion in this case and emphasized that an appeal under Rule 45 of the Rules of Court was available to Intec.

FAQs

What was the key issue in this case?	The key issue was whether Intec Cebu Inc.’s reduction of working days for its employees constituted constructive dismissal. The court examined if the reduction was a valid exercise of management prerogative or an illegal alteration of employment terms.
What is constructive dismissal?	Constructive dismissal occurs when an employer’s actions make continued employment impossible, unreasonable, or unlikely for the employee. This includes situations where there is a demotion, reduction in pay, or an unbearable working environment that forces the employee to resign.
Can an employer reduce employees’ working hours?	An employer can reduce working hours as part of its management prerogative, but it must be done in good faith and with due regard to the employees’ rights. The employer must also demonstrate a valid business reason, such as financial losses, and comply with labor laws.
What evidence did Intec present to justify the reduction of working days?	Intec presented financial statements indicating losses in certain years and claimed a slump in demand. However, the court found that the financial statements did not conclusively prove the necessity of the reduction, and the evidence of a slump in demand was lacking in specificity and credibility.
Why did the court rule against Intec’s financial justifications?	The court noted that while Intec had losses in one year, it had gains in another, and the losses could be attributed to investments rather than operational distress. The court also found the financial data to be inconsistent with the claim of an urgent need to reduce working hours.
What is the significance of hiring new employees during the reduced work week?	The hiring of new employees while reducing the working hours of existing employees undermined Intec’s claim of financial hardship. It suggested that the company’s cost-cutting measures were not genuinely necessary, which factored into the court’s decision.
What is required to prove abandonment of work?	To prove abandonment, there must be clear evidence of a deliberate and unjustified intent to sever the employer-employee relationship. Filing a complaint for illegal dismissal is generally inconsistent with abandonment.
What should an employee do if their working hours are unilaterally reduced?	Employees should first seek clarification from their employer regarding the reasons for the reduction. They should document all communications and consult with a labor lawyer to understand their rights and options, which may include filing a complaint for constructive dismissal.
What was the effect of the absence of DOLE notification prior to implementation?	Though there wasn’t yet a definitive law at the time requiring it, the absence of prior notification to the DOLE regarding the implementation of reduced working hours negatively impacted Intec’s case, suggesting a lack of transparency and potential disregard for regulatory compliance.

This case underscores the importance of balancing management prerogatives with the protection of employees’ rights. Employers must ensure that any changes to working conditions are justified by legitimate business reasons, implemented in good faith, and compliant with labor laws. Failure to do so may result in findings of constructive dismissal and liability for separation pay and backwages.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: INTEC CEBU INC. vs. HON. COURT OF APPEALS, G.R. No. 189851, June 22, 2016