G.R. Nos. 75700-01, August 30, 1990
LOPEZ SUGAR CORPORATION, petitioner, vs. FEDERATION OF FREE WORKERS, PHILIPPINE LABOR UNION ASSOCIATION (PLUA-NACUSIP) and NATIONAL LABOR RELATIONS COMMISSION, respondents.

FACTS

Petitioner Lopez Sugar Corporation, citing major economic problems including low sugar prices, rising production costs, and the stoppage of its railway operations, filed an application for clearance to retrench 27 employees and a report on the retirement of 59 others effective in early 1980. This was based on a cost-reduction program to prevent losses. The retirements were purportedly exercised under a privilege granted in the 1975-1977 Collective Bargaining Agreement (CBA). The Federation of Free Workers (FFW), the certified bargaining agent, filed a complaint for unfair labor practice, alleging the terminations violated security of tenure and were intended to bust the union, especially as petitioner allegedly called for 110 casuals afterward. Petitioner denied this, claiming the call was only to create a pool for temporary vacancies.
The Labor Arbiter denied the application for retrenchment, finding petitioner failed to prove serious, actual, and real losses supported by sufficient evidence. The retirement application was also denied as the 1975-1977 CBA had long expired. Reinstatement with full backwages for 27 employees was ordered. The National Labor Relations Commission (NLRC) affirmed this decision.

ISSUE

Whether the NLRC committed grave abuse of discretion in affirming the denial of petitioner’s application for retrenchment and retirement, and in ordering reinstatement with backwages.

RULING

The Supreme Court partially granted the petition. On retrenchment, the Court upheld the NLRC. Retrenchment to prevent losses is a recognized management prerogative under Article 283 of the Labor Code, but the employer bears the burden of proving the necessity. The Court found petitioner’s evidence—general assertions about low sugar prices, increased costs, and railway stoppage—insufficient. Petitioner presented no audited financial statements, profit and loss accounts, or other independent evidence showing actual or imminent substantial losses. Mere allegations of economic difficulty, without convincing proof, do not justify retrenchment. Thus, the dismissal of the 27 retrenched employees was illegal.
However, the Court reversed the NLRC regarding the 25 employees retired effective February 1, 1980. The legal basis for their termination was not the expired 1975-1977 CBA but a subsequent 1978-1980 CBA, which contained a similar retirement privilege clause. This later CBA was still in effect at the time of their retirement. Since the retirement was exercised under a valid and subsisting CBA provision agreed upon by the union, it was a valid exercise of a management prerogative founded on contract. Therefore, their dismissals were legal, and the order for their reinstatement and backwages was set aside. The decision was modified accordingly.