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 Regional Director of the Department of Labor and Employment to terminate the services of respondents Conchita G. Mercado and Celerio Mercado, who were a classroom teacher and the Principal/Treasurer, respectively. The dismissal was based on a valid ground of loss of confidence due to 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. The Deputy Minister of Labor, awarded separation pay to the dismissed employees. The petitioner challenges this award through a special civil action for certiorari, arguing that granting separation pay under these circumstances is unjust.

ISSUE

Whether or not employees who are validly dismissed for causes 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 causes that do not involve serious misconduct or offenses reflecting on the employee’s moral character. Examples of such non-iniquitous causes include inefficiency, failure to meet work standards, poor attendance, or irreconcilable differences leading to loss of confidence. In these instances, separation pay may be warranted as a compassionate measure.
However, where the dismissal is for a serious offense involving moral turpitude, such as dishonesty, theft, embezzlement, or illicit sexual relations, the grant of separation pay is unjustified. The policy of social justice is not intended to condone wrongdoing or reward erring employees. To award separation pay in cases of clear dishonesty would undermine discipline, encourage repeated offenses, and unfairly burden the employer. The Court emphasized that social justice is a refuge only for those with clean hands, not for individuals whose actions taint their character.
Since the respondents were validly dismissed for embezzlement and serious misconduct—causes that directly reflect on their moral character—the award of separation pay was erroneous. Accordingly, the Court affirmed the order granting clearance for dismissal but deleted the award of separation pay.