G.R. No. 181503; September 18, 2009
BIO QUEST MARKETING INC. and/or JOSE L. CO, Petitioner, vs. EDMUND REY, Respondent.

FACTS

Edmund Rey was hired by Bio Quest Marketing, Inc. as an Area Collector. Allegedly due to a decline in sales and collections, the company implemented a retrenchment program. Rey received a termination letter dated August 30, 2003, and his employment ended on September 29, 2003. The company furnished the Department of Labor and Employment with a retrenchment notice. Rey filed a complaint for illegal dismissal, arguing the termination lacked a valid cause and due process.
The Labor Arbiter ruled in favor of Rey, declaring the dismissal illegal and ordering reinstatement with backwages. The National Labor Relations Commission (NLRC) initially affirmed this but, upon reconsideration, reversed itself. The NLRC accepted the company’s claim of imminent losses justifying retrenchment but awarded Rey separation pay. The Court of Appeals subsequently reversed the NLRC, reinstating the Labor Arbiter’s finding of illegal dismissal, holding that the company failed to prove the requisite losses for a valid retrenchment.

ISSUE

Whether the Court of Appeals erred in ruling that Bio Quest Marketing, Inc. failed to prove substantial, actual, or imminent losses to justify the retrenchment of Edmund Rey.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. Retrenchment to prevent losses is a authorized ground for dismissal under Article 283 of the Labor Code, but the employer bears the burden of proving it with clear and satisfactory evidence. The employer must establish that the retrenchment was reasonably necessary to prevent substantial and actual losses, or reasonably imminent losses, and that it was done in good faith after serving proper notice and using fair criteria.
Here, Bio Quest failed to discharge this burden. Its sole evidence was a comparative report of sales and collections from 2001 to 2003. While showing a decline from 2002 to 2003, this report was insufficient. The Court emphasized that proof of actual or imminent losses must be solid and substantial. A mere decline in gross sales or income is not conclusive proof of serious business losses, as it does not account for the company’s overall financial condition, including its net losses. The company did not submit financial statements or audit reports to substantiate its claim of impending serious losses. Consequently, the retrenchment was not justified, rendering Rey’s dismissal illegal. The award of reinstatement with backwages, or separation pay if reinstatement is not feasible, was upheld.