G.R. No. 143542 ; June 8, 2006
SIME DARBY PILIPINAS, INC. and LARRY C. DUBBERLY, Petitioners, vs. ALFREDO ARGUILLA and HENRY C. PEDRAJAS, Respondents.

FACTS

Petitioners Sime Darby Pilipinas, Inc. (SDPI) terminated the employment of respondents Alfredo Arguilla and Henry Pedrajas on June 30, 1990, citing a retrenchment program due to insufficiency of available jobs in its recapping operations. The respondents received separation benefits and subsequently signed quitclaim documents on August 28, 1990, but they inscribed “UNDER PROTEST” above their signatures. They then filed a complaint for illegal dismissal. The Labor Arbiter dismissed the complaint, upholding the validity of the retrenchment. The National Labor Relations Commission (NLRC) affirmed this decision.
However, the Court of Appeals (CA) reversed the NLRC, declaring the dismissals illegal. The CA found that SDPI failed to substantiate the alleged business losses justifying retrenchment. It noted the company continued its operations and even hired new employees for similar positions after the respondents’ termination. The CA also ruled that the quitclaims signed under protest were invalid and did not bar the respondents from pursuing their claims.

ISSUE

Whether the Court of Appeals erred in ruling that the dismissal of the respondents was illegal and not justified by a valid retrenchment program.

RULING

The Supreme Court denied the petition and affirmed the CA decision. The legal logic centers on the employer’s burden to prove the existence of a lawful retrenchment. Retrenchment is a valid authorized cause for dismissal under Article 283 of the Labor Code, but it must be justified by proof of substantial business losses or a legitimate effort to prevent such losses. The employer must establish, with clear and convincing evidence, that the retrenchment was reasonably necessary and undertaken in good faith.
In this case, SDPI failed to discharge this burden. It presented no audited financial statements, profit and loss accounts, or other competent evidence to prove actual or imminent financial losses. The mere allegation of insufficiency of jobs, without corroborating proof, is insufficient. The Court found that SDPI continued to operate its recapping business and, significantly, hired new employees for positions similar to those held by the respondents. This subsequent hiring negated the claim of redundancy and exposed the retrenchment as a pretext. Consequently, the dismissal was illegal. The quitclaims signed “under protest” were correctly deemed involuntary and ineffectual as waivers, given the absence of a valid dismissal and the inherent inequality between the employer and employee. Respondents were thus entitled to reinstatement and full backwages.