G.R. No. L-15171. April 29, 1961.
LEPANTO CONSOLIDATED MINING COMPANY and CHARLES B. FOSTER, petitioners, vs. THE COURT OF APPEALS and LEONARDO ARCA, respondents.

FACTS

Leonardo Arca was employed by Lepanto Consolidated Mining Company as a clerk-typist. His services were terminated on August 22, 1954, with the company citing that his services were “no longer needed.” Arca filed a complaint, alleging his dismissal was a breach of their employment agreement, which he claimed was to continue until his assigned work was finished, and that the real reason was his union activities. He sought reinstatement, back wages, and damages. The Court of First Instance dismissed his complaint, finding the dismissal justified. The trial court accepted the company’s evidence that Arca was dismissed for loss of confidence due to acts like writing to the President about store prices, making complaints about a school, “snooping” in files, and organizing a rival union, which constituted dishonesty under the labor contract.
The Court of Appeals reversed the trial court’s decision. It held that Arca’s acts, such as petitioning the government and organizing a union, were lawful exercises of constitutional rights and civic duties, not acts of dishonesty. It found the stated reason for dismissal (“services no longer needed”) was a pretext and ordered Arca’s reinstatement with back wages. The mining company and its manager elevated the case to the Supreme Court.

ISSUE

Whether the employer, having lost confidence in an employee hired for confidential work, can be compelled to reinstate that employee, and if not, what is the employer’s liability for terminating the employment.

RULING

The Supreme Court set aside the Court of Appeals’ reinstatement order but held the employer liable for damages. The Court agreed with the trial court’s factual finding that the employer had lost confidence in Arca. It emphasized that Arca was hired specifically for confidential work involving the reorganization of sensitive files. His actions, while arguably lawful in a general sense (e.g., writing to the President), demonstrated a character and conduct unsuitable for a position demanding utmost trust. The employer’s loss of confidence was a valid ground to refuse continued employment.
However, the Court ruled that loss of confidence, while relieving the employer from the obligation to reinstate, does not absolve it from liability for breach of the employment contract. The termination based on loss of confidence, rather than on the contractually specified grounds like project completion, constituted a contractual breach. Consequently, the employee is entitled to damages for this breach. The Supreme Court remanded the case to the trial court for the sole purpose of determining the amount of damages Arca suffered due to the wrongful termination, without ordering his reinstatement. The decision balances the employer’s right to terminate a confidential employee in whom trust is lost with the employee’s right to compensation for the contractual breach.