G.R. No. 162233 March 10, 2006
RONALDO B. CASIMIRO, ET AL., Petitioners, vs. STERN REAL ESTATE INC., REMBRANDT HOTEL and/or GRACE KRISTIN MEEHAN (General Manager), and ERIC SINGSON (Owner), Respondents.

FACTS

Respondent Stern Real Estate, owner of Hotel Rembrandt, offered a Special Separation Program (SSP) to its employees in May 1999, citing dire financial status. The SSP was a one-time offer, and management reserved the sole discretion to approve applications. The memorandum warned that if an insufficient number availed of the SSP, management would be constrained to involuntarily terminate employees due to financial losses. Petitioners, among other employees, did not apply for the SSP. Subsequently, the hotel management terminated 29 employees, including petitioners, effective June 28, 1999, citing financial losses and company reorganization. An Establishment Termination Report was filed with the Department of Labor and Employment.
Petitioners filed a complaint for illegal dismissal, arguing the retrenchment was a ploy. They contended the hotel failed to prove serious financial losses, did not give proper DOLE notice before the SSP, and was hiring replacements. The Labor Arbiter ruled in favor of petitioners, declaring the dismissals illegal. The National Labor Relations Commission (NLRC) reversed, finding the retrenchment valid. The Court of Appeals affirmed the NLRC decision, prompting this petition.

ISSUE

Whether the Court of Appeals erred in affirming the NLRC decision which upheld the validity of the petitioners’ dismissal on the ground of retrenchment due to serious financial losses.

RULING

The Supreme Court granted the petition and reversed the Court of Appeals. The dismissal was illegal. For retrenchment to be valid, the employer must prove it is reasonably necessary and likely to prevent business losses, which must be serious, actual, and real. The employer bears the burden of proof. Here, respondents failed to discharge this burden. The financial statements submitted were unaudited and self-serving, insufficient to prove serious financial losses. The Court noted that expenses appeared bloated in 1998 compared to 1997, suggesting an attempt to justify retrenchment.
Furthermore, the hotel’s act of advertising for job vacancies for positions similar to those held by petitioners shortly after their termination negated the claim of retrenchment due to losses. The requirement of fair and reasonable criteria in selecting employees for dismissal, such as the “last in, first out” rule, was also not observed. The SSP memorandum itself was coercive, threatening involuntary termination if the program’s quota was unmet, which undermined its voluntary nature. Consequently, petitioners were illegally dismissed and are entitled to reinstatement with full backwages and other benefits.