G.R. No. 224097 . February 22, 2023
KENG HUA PAPER PRODUCTS CO., INC. AND JAMES YU, PETITIONERS, VS. CARLOS E. AINZA, PRIMO DELA CRUZ, AND BENJAMIN R. GELICAMI, RESPONDENTS.

FACTS

Respondents Carlos E. Ainza, Primo Dela Cruz, and Benjamin R. Gelicami were employees of petitioner Keng Hua Paper Products Co., Inc. In January 2010, they were allegedly stopped at the company gate by security guards and told they had no more jobs, without being allowed to speak to superiors. They filed a complaint for illegal dismissal.
Petitioners claimed there was no illegal dismissal as Keng Hua ceased operations due to severe damage from typhoon Ondoy in late September 2009, which caused serious financial losses. They presented comparative income statements showing a decline from 2006-2009 and a notarized agreement with the employees’ union acknowledging the typhoon’s damage and the company’s financial distress. However, Keng Hua renewed its Collective Bargaining Agreement in March 2011 and had income statements for 2011-2013, indicating operations continued after the typhoon. Petitioners also asserted that operations slowly resumed in May 2010, but respondents did not return to work.
The Labor Arbiter dismissed the illegal dismissal complaint, finding the job loss was due to a fortuitous event and cessation to prevent losses under Article 283 of the Labor Code, but awarded separation pay. The NLRC affirmed this. The Court of Appeals reversed, finding illegal dismissal due to non-compliance with retrenchment requirements, such as lack of audited financial statements, written notices, and fair criteria for retrenchment.

ISSUE

Whether the Court of Appeals committed serious error in overturning the NLRC and ruling that respondents were illegally dismissed.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ ruling, holding respondents were illegally dismissed.
The Court found that petitioners failed to comply with the legal requirements for a valid suspension of operations or retrenchment. Under Article 301 (formerly 286) of the Labor Code, a bona fide suspension of operations cannot exceed six months. Here, Keng Hua ceased operations from September 26, 2009, and resumed only in May 2010, a period exceeding six months, thereby terminating the employment of respondents.
Furthermore, if the cessation was intended to be permanent, it would constitute retrenchment. For retrenchment to be valid, the employer must prove: (1) substantial losses; (2) imminent losses; (3) written notice to employees and the DOLE at least one month prior; (4) payment of separation pay; (5) good faith; and (6) fair and reasonable criteria in selecting employees to be dismissed. Petitioners failed to substantiate alleged losses with independently audited financial statements, did not serve the required written notices, and did not show the use of fair criteria. The notarized union agreement and income statements were insufficient to prove the required financial condition. The subsequent renewal of the CBA and continued operations also belied the claim of permanent cessation.
Thus, the dismissal was illegal. Respondents are entitled to reinstatement without loss of seniority rights and full backwages from dismissal until finality of the decision, or separation pay if reinstatement is not feasible, plus attorney’s fees. The case was remanded to the Labor Arbiter for computation.