G.R. No. L-23857; August 29, 1969
INSULAR LUMBER COMPANY, petitioner, vs. COURT OF APPEALS, EULOGIO ARONALES, MANUEL ASTORGA, JULIO ATADERO, MELANIO BUNA, LUCIANO CARTON, AMADO CATALAN, FRANCISCO GANTES, FELIPE GASPE, BERNARDO MARQUEZ, MELANIO PORLAS, CARLOS PEÑAFLOR, and SIMEON VAFLOR, respondents.

FACTS

Private respondents were employees without a definite term of petitioner Insular Lumber Company. A majority had worked for over 20 years. They were union members. On June 5, 1959, the labor union and petitioner executed an agreement (Article XVIII) providing for death and separation gratuities in cases like reduction of force, with rates lower than those in the Termination Pay Law (Republic Act 1787). In September 1959, petitioner informed employees of economic problems due to new taxes. In October 1959, it commenced a retrenchment program, dismissing about 600 laborers, including private respondents, and paid them gratuities based on the union agreement. Twenty-seven dismissed employees sued for recovery of termination pay under Republic Act 1787. The trial court dismissed the complaint. On appeal, the Court of Appeals ruled the union agreement was null and void for being contrary to Section 2 of Republic Act 1787, dismissed the case as to 15 plaintiffs, and ordered petitioner to pay the 12 remaining plaintiffs (private respondents) specific amounts as termination pay after deducting the gratuities already received, plus interest, attorney’s fees, and costs. The Court of Appeals concluded the retrenchment was not in good faith and that mechanization/modernization was not a just cause under the law. Petitioner appealed to the Supreme Court.

ISSUE

Whether the dismissal of employees without a definite period of employment due to a retrenchment program for reasons of economy and mechanization/modernization constitutes a “just cause” under Republic Act 1787, exempting the employer from paying termination pay.

RULING

No. The Supreme Court affirmed the Court of Appeals’ judgment with modification. Retrenchment due to economy and mechanization/modernization is not a “just cause” under Section 1 of Republic Act 1787. The just causes enumerated (e.g., closing/cessation of operation, serious misconduct) are exclusive and must be strictly construed in favor of labor. The union agreement providing lower gratuities was null and void as it contravened the mandatory and beneficial provisions of the law. The employer is liable for termination pay. However, the Court modified the computation of the award. For employees who worked prior to the war and were reemployed afterwards, the period of service during the war years when they did not work for the company should be excluded in computing their length of service for termination pay. The case was remanded to the trial court to determine which of the 12 employees were subject to this deduction and to compute the correct amounts accordingly.