G.R. No. 165923; September 29, 2010
SHIMIZU PHILS. CONTRACTORS, INC., Petitioner, vs. VIRGILIO P. CALLANTA, Respondent.

FACTS

Petitioner Shimizu Phils. Contractors, Inc., a construction firm, employed respondent Virgilio P. Callanta, who eventually became Project Administrator of its Structural Steel Division. By a Memorandum dated June 7, 1997, petitioner informed respondent that his services would be terminated effective July 9, 1997, citing the lack of vacancy in other projects and the need for personnel re-alignment due to financial commitments. Respondent filed an illegal dismissal complaint. Petitioner defended the dismissal as a valid retrenchment due to financial losses in the construction industry, presenting financial statements and evidence of a capital infusion. It claimed the termination coincided with project completion and that separation pay was offered but refused.
Respondent countered that the retrenchment was invalid. He argued the notice sent to him cited project completion, not retrenchment, and the notice to the Department of Labor and Employment (DOLE) did not comply with the 30-day prior notice rule. He also asserted petitioner failed to use fair and reasonable criteria, noting he was the only one dismissed out of 333 employees per a DOLE report, and that junior employees were retained or reassigned to new projects, violating seniority rules. Petitioner later alleged respondent had pending administrative complaints for various infractions.

ISSUE

Whether respondent Virgilio P. Callanta was illegally dismissed.

RULING

Yes, the dismissal was illegal. For a retrenchment to be valid, the employer must prove: (1) substantial losses; (2) written notice to the employee and DOLE at least one month before termination; and (3) use of fair and reasonable criteria in selecting employees to be retrenched. While petitioner may have established financial losses, it failed to comply with the procedural and substantive requirements.
First, the notice to respondent was defective as it stated “project completion” and not retrenchment as the cause, failing to properly inform him of the actual ground. The notice to DOLE was also not sent one month prior, constituting non-compliance with Article 283 of the Labor Code. Second, and more critically, petitioner failed to prove it used fair and reasonable criteria, such as seniority or efficiency. The termination report showed respondent was the sole employee dismissed in July 1997, and petitioner’s claim of a broader retrenchment program was unsupported by evidence showing how criteria were impartially applied. The belated allegation of respondent’s administrative infractions, raised only on appeal, could not retroactively justify the dismissal. Consequently, the retrenchment was invalid. The Supreme Court affirmed the Court of Appeals’ decision ordering reinstatement and payment of full backwages.