Management Prerogative Must Be Exercised in Good Faith to Justify Dismissal

East Cam Tech Corporation v. Fernandez, et al., G.R. No. 222289, June 08, 2020

Imagine returning to your job after a successful legal battle against wrongful termination, only to find yourself facing new, seemingly unattainable production quotas. This was the reality for four sewers at East Cam Tech Corporation, who were dismissed for failing to meet these quotas. Their case, which reached the Philippine Supreme Court, sheds light on the delicate balance between management’s right to set performance standards and the protection of employees from unfair dismissal.

The central question in this case was whether the dismissal of the four sewers was legal, given that their failure to meet the new production quotas was the primary reason cited by their employer. The Supreme Court’s decision underscores the importance of good faith in the exercise of management prerogative and the potential consequences of setting unrealistic performance standards.

Legal Context: Understanding Management Prerogative and Illegal Dismissal

In the Philippines, the Labor Code governs the employer-employee relationship, including the grounds for termination of employment. Article 282 of the Labor Code lists just causes for dismissal, including gross and habitual neglect of duty. However, the employer must prove that the dismissal was for a valid reason and that due process was observed.

Management prerogative refers to the employer’s right to regulate all aspects of employment, such as work assignments and performance standards. However, this right is not absolute. The Supreme Court has ruled that management prerogative must be exercised in good faith and not used to circumvent employees’ rights.

For instance, in the case of Aliling v. Feliciano, the Court held that an employee’s failure to meet sales or work quotas can be considered gross inefficiency, but only if the quota was set in good faith. The employer must demonstrate that the quota is reasonable and achievable.

The concept of good faith is crucial. As stated in Article 1339 of the Civil Code, “The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.” This principle applies to employment contracts, where the terms must be fair and enforceable.

Case Breakdown: The Journey of Four Sewers

Bambie T. Fernandez, Yolanda Delos Santos, Leonora Trinidad, and Charito S. Manalansan were sewers at East Cam Tech Corporation, a bag manufacturing company. After winning an illegal dismissal case against East Cam, they were reinstated and reassigned to the sewing line of the sample department. However, they were soon given production quotas based on a new Time and Motion Study (TMS), which they found unattainable.

On two separate occasions, the sewers were assigned job orders with specific production targets. Despite their efforts, including seeking help from another sewer for the second job order, they failed to meet the quotas. East Cam then dismissed them for gross and habitual neglect of duty.

The sewers appealed their dismissal to the National Labor Relations Commission (NLRC), which upheld the decision of the Executive Labor Arbiter (ELA). However, the Court of Appeals (CA) reversed the NLRC’s decision, finding that the sewers were not guilty of gross and habitual neglect of duty and that their dismissal was illegal.

The Supreme Court, in its decision, emphasized the importance of good faith in setting production quotas. The Court noted that East Cam failed to prove that the quotas were achievable and that the sewers were singled out after their previous legal victory.

Key quotes from the Supreme Court’s decision include:

“East Cam did not dispute that the respondents were reinstated after they were illegally dismissed. They were reassigned from the production line to the sample line. And yet, they were required to perform tasks for the production line.”

“The Court further observes that before they were transferred, the respondents had no previous record of negligence in their eight years of tenure with East Cam.”

The Court concluded that the dismissal was illegal, affirming the CA’s decision to reinstate the sewers and award them backwages and other benefits.

Practical Implications: Navigating Performance Standards and Employee Rights

This ruling has significant implications for employers and employees alike. Employers must ensure that any performance standards or quotas they set are reasonable and achievable, and that they are applied in good faith. Failure to do so can result in findings of illegal dismissal and substantial financial penalties.

For employees, this case highlights the importance of documenting any concerns about unrealistic quotas or unfair treatment. It also underscores the protection provided by labor laws against arbitrary dismissal.

Key Lessons:

• Employers must set performance standards in good faith and ensure they are achievable.
• Employees should document any concerns about unrealistic quotas or unfair treatment.
• Legal recourse is available for employees who believe they have been unfairly dismissed.

Frequently Asked Questions

What is management prerogative?

Management prerogative is the right of employers to regulate aspects of employment, such as work assignments and performance standards, as long as they are exercised in good faith and do not violate employees’ rights.

Can an employer dismiss an employee for failing to meet a production quota?

Yes, but only if the quota is reasonable and achievable, and the employer can prove that the dismissal was for a valid reason and that due process was followed.

What is considered gross and habitual neglect of duty?

Gross and habitual neglect of duty is a just cause for dismissal under the Labor Code, but it must be proven that the employee repeatedly failed to perform their duties without justifiable reason.

How can employees protect themselves from unfair dismissal?

Employees should document any concerns about their work conditions, seek legal advice if they believe they have been unfairly treated, and be aware of their rights under labor laws.

What are the consequences for employers who illegally dismiss employees?

Employers may be required to reinstate the employee, pay backwages and other benefits, and may face additional penalties such as attorney’s fees.

ASG Law specializes in labor and employment law. Contact us or email hello@asglawpartners.com to schedule a consultation.