Atty. Julius Gregory Delgado
KENG HUA PAPER PRODUCTS CO., INC. VS. CARLOS E. AINZA, ET AL.,
G.R. NO. 224097, FEBRUARY 22, 2023: RESTATEMENT OF THE REQUISITES OF A VALID RETRENCHMENT
Respondent Carlos E. Ainza was hired in July 1981 as a machine tender. Respondent Primo Dela
Cruz was hired in April 1982 but resigned on 26 March 2001 to avail of his gratuity pay. He was rehired
in May 2001. Respondent Benjamin Gelicami was hired in February 2002. Ainza and Dela Cruz’s salaries
amounted to P392.50 per day, while Gelicami’s was P383.00 per day. Respondents alleged that
sometime in January 2010, they were stopped at the gate by the security guards and were told that they
had no more jobs to do. Respondents were not even allowed to talk to their superiors to hear the
reason of the sudden termination of their employment.
Petitioner Keng Hua Products, Co., Inc., on the other hand, claimed that there was no illegal
dismissal because Keng Hua ceased operating and there was no work for respondents. Keng Hua is
located at 1000 Gov. Pascual Avenue, Potrero, Malabon City, an area that was greatly affected by the
flashfloods caused by typhoon Ondoy in late September 2009. Floods seriously damaged Keng Hua’s
equipment. Prior to typhoon Ondoy, Keng Hua was already suffering a decline in their income since
2007, as evidenced by the comparative income statements it submitted to the Bureau of Internal
Revenue (BIR) for the years 2006 to 200910 and 2011 to 2013. Moreover, Samahan ng mga Manggawa
sa Globe Keng Hua – Association Genuine Labor Union (union), the employees’ union that counts
respondents as members, recognized the effect of typhoon Ondoy on Keng Hua’s income when it
entered into a notarized agreement about their wages.
Despite petitioner Keng Hua’s claim of cessation of operations, on 10 March 2011, two years
after the occurrence of typhoon Ondoy, Keng Hua renewed its collective bargaining agreement (CBA)
with the union for the period covering 02 January 2011 to 02 January 2016. The existence of
comparative income statements for 2011 to 2013 also shows that Keng Hua had operations beyond
September 2009.
The Labor Arbiter dismissed the complaint ruling that the respondents’ loss of jobs was not
planned but was due to fortuitous event. Cessation of operations to prevent losses is also allowed under
Article 283 of the Labor Code. The Labor Arbiter also held that the CBA between petitioner Keng Hua
and the union recognized the existence of petitioner’s financial losses. The National Labor Relations
Commission affirmed the Labor Arbiter’s ruling in toto. The Court of Appeals, however, reversed the
rulings of the Labor Arbiter and the NLRC and held that respondents were retrenched, and petitioner
Keng Hua did not comply with the requisites for effecting a retrenchment.
The Supreme Court affirmed the ruling of the Court of Appeals restating the requisites of a valid
retrenchment program to prevent losses which must be proved by clear and convincing evidence, to wit:
(1) that the retrenchment is reasonably necessary and likely to prevent business losses which, if already
incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are
reasonably imminent as perceived objectively and in good faith by the employer; (2) that the employer
served written notice both to the employees and to the Department of Labor and Employment at least
one month prior to the intended date of retrenchment; (3) that the employer pays the retrenched
employees separation pay equivalent to one month pay or at least 1/2 month pay for every year of
service, whichever is higher; (4) that the .employer exercises its prerogative to retrench employees in
good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to
security of tenure; and (5) that the employer used fair and reasonable criteria in ascertaining who would
be dismissed and who would be retained among the employees, such as status (i.e., whether they are
temporary, casual, regular or managerial employees), efficiency, seniority, physical fitness, age, and
financial hardship for certain workers.
The Supreme Court held that petitioner Keng Hua failed to show proof of compliance with the
procedural requirements for a valid termination of employment due to authorized causes:
“Petitioners failed to show proof of compliance with the procedural requirements for a valid
termination of employment. First, Keng Hua failed to show any proof of such written notice to any of the
respondents or to the DOLE. That respondents were already on temporary lay-off at the time notice
should have been given to them is not an excuse to forego the onemonth written notice because by this
time, their lay-off is to become permanent and they were definitely losing their employment. Second,
Keng Hua failed to show proof of payment of termination pay to respondents.”
The Court also held that petitioner Keng Hua failed to show before the Labor Arbiter and NLRC
financial statements to prove its actual business losses. The Court of Appeals even made a factual
finding that “there are no independent audited financial statements proving the alleged financial losses
of [Keng Hua].”There was also no showing that petitioners adopted other cost-saving measures before
resorting to retrenchment There was no indication that petitioner Keng Hua used fair and reasonable
criteria, if at all, in determining who would be retrenched.
Finally, the Supreme Court also did not believe petitioner Keng Hua’s claim of cessation of
operations as basis to terminate respondents’ employment as facts simply do not support such claim.
The Court held that petitioner Keng Hua annexed to their petitioner copies of the comparative
statements submitted for the years 2006 to 2009 and 2010 to 2013. The Court ruled that these income
statements prove that petitioner Keng Hua was operating even four years after the occurrence of
Typhoon Ondoy. The records will show that neither the Labor Arbiter, the NLRC, nor the Court of
Appeals established the date of petitioner Keng Hua’s actual cessation of operations. Hence, the Justices
held that they cannot bring themselves to rule that petitioner Keng Hua’s closure, if there be one, was
done in good faith, for to do so will defeat or circumvent respondents’ rights under the law or valid
agreement.