G.R. No. 83234 . April 18, 1989.
OSIAS ACADEMY, petitioner, vs. THE DEPARTMENT OF LABOR AND EMPLOYMENT, CONCHITA G. MERCADO and CELERIO MERCADO, respondents.

FACTS

Petitioner Osias Academy was granted clearance by the Department of Labor and Employment to terminate the employment of respondents Conchita G. Mercado and Celerio Mercado, a married couple serving as a classroom teacher and Principal/Treasurer, respectively. The dismissal was based on a valid ground of loss of confidence arising from a satisfactory showing of embezzlement of company funds and serious misconduct.
Despite the valid dismissal, the respondent Minister of Labor, invoking equity and citing the precedent in San Miguel Corporation vs. Deputy Minister of Labor, awarded separation pay to the dismissed employees. The petitioner academy challenged this award via a special civil action for certiorari, arguing that granting financial benefits for dismissal due to acts involving dishonesty is unjust.

ISSUE

Whether employees dismissed for a cause reflecting on their moral character, such as dishonesty or serious misconduct, are entitled to separation pay on grounds of equity and social justice.

RULING

The Supreme Court ruled in favor of the petitioner and disallowed the grant of separation pay. The Court reaffirmed and clarified the principles established in Philippine Long Distance Telephone Company vs. NLRC, which rationalized the exception to the general rule under the Labor Code that an employee dismissed for cause is not entitled to separation pay.
The Court held that the exception based on equity and social justice applies only to dismissals for valid but not iniquitous causes, such as inefficiency, failure to meet work standards, or poor attendance. In such instances, the grant of separation pay is a compassionate measure. However, this exception does not extend to dismissals based on serious misconduct or causes reflecting on the employee’s moral character, such as dishonesty, theft, or acts involving moral turpitude.
The legal logic is that social justice policy is not intended to condone wrongdoing or reward erring employees. Granting separation pay for dismissals due to serious offenses like embezzlement would undermine the disciplinary purpose of dismissal and could encourage repeated misconduct. Social justice protects only those with clean hands; it cannot be a refuge for scoundrels. Since the respondents were dismissed for dishonesty—a cause reflecting directly on their moral character—the award of separation pay was unjustified. The Court affirmed the validity of the dismissal but reversed the award of separation benefits.