G.R. Nos. 164813 and 174590

FIRST DIVISION

LOWE, INC., MARIA ELIZABETH (“MARILES”) L. GUSTILO, and RAUL M. CASTRO,

Petitioners,

- versus -

COURT OF APPEALS and

IRMA M. MUTUC,

Respondents.

G.R. Nos. 164813 and 174590

Present:

PUNO, C.J., Chairperson,

CARPIO,

CORONA,

LEONARDO-DE CASTRO, and

BERSAMIN, JJ.

Promulgated:

August 14, 2009

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D E C I S I O N

CARPIO, J.:

The Case

Before the Court are the consolidated cases docketed as G.R. Nos. 174590 and 164813. Both cases stemmed from the 30 June 2003 Resolution[1] of the National Labor Relations Commission (NLRC), which declared that respondent Irma M. Mutuc (Mutuc) was illegally dismissed by petitioner Lowe, Inc. (Lowe).[2]

The first case, G.R. No. 164813, is a petition for review[3] of the 23 January 2004 Decision[4] and the 4 August 2004 Resolution[5] of the Court of Appeals in CA-G.R. SP No. 80531. In its 23 January 2004 Decision, the Court of Appeals affirmed the NLRC’s 30 June 2003 Resolution. In its 4 August 2004 Resolution, the Court of Appeals denied Lowe’s motion for reconsideration.

The second case, G.R. No. 174590, is a petition for review[6] of the 13 March 2006 Decision[7] and 5 September 2006 Resolution[8] of the Court of Appeals in CA-G.R. SP No. 80473. In its 13 March 2006 Decision, the Court of Appeals granted Mutuc’s petition and partially modified the NLRC’s 30 June 2003 Resolution by awarding Mutuc backwages computed from the time of her dismissal up to the finality of the decision of the Court of Appeals. In its 5 September 2006 Resolution, the Court of Appeals denied Lowe’s motion for reconsideration.

The Facts

Lowe, an advertising agency, is a corporation duly organized and existing under the laws of the Philippines. Petitioner Maria Elizabeth “Mariles” L. Gustilo (Gustilo)[9] is the Chief Executive Officer and President of Lowe, while petitioner Raul M. Castro (Castro) is the Executive Creative Director of Lowe. Gustilo and Castro were included in the complaint for illegal dismissal in their capacity as officers of Lowe.

On 23 June 2000, at the height of the influx of advertising projects, Lowe hired Mutuc as a Creative Director to help out the four other Creative Directors of Lowe. Mutuc was given a salary of P100,000 a month. On 26 February 2001, Mutuc became a regular employee of Lowe.

However, in 2001, most of Lowe’s clients reduced their advertising budget. In response to the situation, Lowe implemented cost-cutting measures including a redundancy program. On 31 October 2001, Lowe terminated Mutuc’s services because her position was declared redundant.

Subsequently, Mutuc filed a complaint for illegal dismissal, nonpayment of 13^th month pay with prayer for the award of moral and exemplary damages plus attorney’s fees against Lowe.

On 15 August 2002, the Labor Arbiter dismissed Mutuc’s complaint and ruled that Lowe validly dismissed Mutuc from the service. The 15 August 2002 Decision of the Labor Arbiter reads:

WHEREFORE, all foregoing premises considered, judgment is hereby rendered finding complainant to have been validly dismissed from the service due to the redundancy of her position with respondent company. Accordingly, respondent Lowe Lintas & Partners is hereby ordered to pay complainant separation pay equivalent to one (1) month salary for every year of service amounting to P100,000.00. Additionally, same respondent is likewise ordered to pay complainant her proportionate 13^th Month Pay for the period January 1 – September 28, 2001 in the amount of P74,416.67.

Individual respondents Mariles Gustillo and Raul Castro are hereby ordered dropped as party-respondents in this case for reasons above-discussed.

All other claims are dismissed for lack of factual and/or legal basis.

SO ORDERED.[10]

Feeling aggrieved, Mutuc appealed to the NLRC.

In its 30 June 2003 Resolution, the NLRC set aside the Labor Arbiter’s 15 August 2002 Decision and declared that Mutuc was illegally dismissed by Lowe. The 30 June 2003 Resolution of the NLRC reads:

ACCORDINGLY, the decision appealed from is SET ASIDE. A new Decision is hereby rendered directing the respondents to pay [private respondent] separation pay equivalent to one (1) month pay for every year of service, a fraction of six (6) months shall be considered one (1) year and backwages computed from the time she was unlawfully dismissed up to the promulgation of this Decision. Moreover, respondents are hereby ordered to pay [private respondent] moral damages in the amount of PHP 10,000.00.

SO ORDERED.[11]

Lowe filed a motion for reconsideration. Mutuc also filed a motion for partial reconsideration. In its 5 September 2003 Resolution,[12] the NLRC denied both motions.

Both Lowe and Mutuc filed petitions for certiorari before the Court of Appeals.

Lowe’s petition was docketed as CA-G.R. SP No. 80531. Lowe alleged that the NLRC committed grave abuse of discretion in ruling that the selection of Mutuc for redundancy was done in bad faith and that Mutuc was dismissed because of professional jealousy. Lowe also questioned the NLRC’s decision holding Gustilo and Castro liable for the monetary awards in favor of Mtutc, including the award of P10,000 as moral damages.

In its 23 January 2004 Decision, the Court of Appeals dismissed Lowe’s petition and affirmed the NLRC’s 30 June 2003 Resolution. Lowe filed a motion for reconsideration. In its 4 August 2004 Resolution, the Court of Appeals denied Lowe’s motion.

Mutuc’s petition was docketed as CA-G.R. SP No. 80473. Mutuc alleged that the NLRC committed grave abuse of discretion in awarding her backwages computed only from the time she was unlawfully dismissed up to the promulgation of the NLRC’s decision. In its 13 March 2006 Decision, the Court of Appeals granted Mutuc’s petition and modified the award of backwages. The 13 March 2006 Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the instant petition is GRANTED. The Resolution dated June 30, 2003 is hereby MODIFIED. The award of backwages shall be computed from the time the petitioner was unlawfully dismissed up to the finality of this decision.

SO ORDERED.[13]

Lowe filed a motion for reconsideration. In its 5 September 2006 Resolution, the Court of Appeals denied Lowe’s motion.

The 15 August 2002 Decision of the Labor Arbiter

The Labor Arbiter ruled that Lowe satisfied the requisites for a valid implementation of a redundancy program, namely: (1) there was notice to Mutuc and the Department of Labor and Employment (DOLE); (2) there was an offer to pay separation pay, which Mutuc refused to receive since she did not want to process her clearance; (3) that Lowe was motivated by good faith in declaring Mutuc’s position redundant; and (4) that the criteria used by Lowe, which were seniority and efficiency, to determine which position was redundant, were fair and reasonable. The Labor Arbiter found self-serving Mutuc’s allegation that she was terminated from service due to professional jealousy.

Since Mutuc was validly dismissed, the Labor Arbiter ruled that Mutuc was not entitled to backwages or reinstatement. However, in the absence of proof of payment of her proportionate 13^th month pay for the period of 1 January to 28 September 2001, the Labor Arbiter ordered Lowe to pay Mutuc P74,416.67. The Labor Arbiter denied Mutuc’s claim for moral damages and attorney’s fees because there was no evidence of malice or bad faith on the part of Lowe in terminating her services.

Finally, the Labor Arbiter ruled that Gustilo and Castro could not be held liable for the monetary awards to Mutuc since they were merely acting in the performance of their duties and there was no showing that they acted deliberately or maliciously to evade any obligation to Mutuc.

The 30 June 2003 Resolution of the NLRC

The NLRC set aside the Labor Arbiter’s 15 August 2002 Decision and declared that Lowe acted in bad faith in terminating Mutuc’s services. The NLRC added that Lowe failed to adopt any fair and reasonable criteria in declaring Mutuc’s position redundant. The NLRC said it appeared that Mutuc was singled out and only her position was declared redundant. The NLRC also noted that the other employees under Mutuc’s supervision were reassigned to other projects and that Lowe could have also reassigned Mutuc to these projects. The NLRC added that Lowe should have dismissed Malou Dulce, the Creative Director in-charge of the Unilever account, Lowe’s client which greatly reduced its advertising budget. The NLRC also gave credence to Mutuc’s claim that she was removed because of professional jealousy. The NLRC concluded that Lowe used redundancy as a guise to get rid of Mutuc even if there was no basis to declare her position redundant.

Since Mutuc was illegally dismissed and strained relations made reinstatement impossible, the NLRC ordered Lowe, Gustilo, and Castro to pay Mutuc backwages and separation pay. The NLRC also awarded Mutuc P10,000 as moral damages because her dismissal was tainted with bad faith.

The 23 January 2004 Decision of the Court of Appeals

The Court of Appeals agreed with the NLRC that Lowe failed to prove two requisites of a valid redundancy program, namely: (1) good faith in abolishing the redundant position, and (2) fair and reasonable criteria in ascertaining which positions were to be declared redundant. While the Court of Appeals declared that Lowe had convincingly presented the alleged losses in its revenues and massive cutbacks in client spending, the Court of Appeals concluded that Lowe “just included” Mutuc’s position in the redundancy program and that she was being dismissed without cause. The Court of Appeals also said that Lowe should not have made Mutuc a regular employee if she was incompetent and if her performance was below par.

The 13 March 2006 Decision of the Court of Appeals

The Court of Appeals modified the NLRC’s 30 June 2003 Resolution and ruled that Mutuc’s backwages should be computed from the time she was unlawfully dismissed until the decision of the Court of Appeals becomes final. According to the Court of Appeals, illegally dismissed employees are entitled to full backwages, computed from the time their compensation was withheld from them up to the time of their actual reinstatement. If, as in this case, reinstatement is no longer possible, backwages shall be computed from the time of their illegal termination up to the finality of the decision.

The Issues

In G.R. No. 164813, Lowe raises the following issues:

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH THE LAW WHEN IT RULED THAT THE PRIVATE RESPONDENT WAS ILLEGALLY DISMISSED FOR REDUNDANCY.

A. THE COURT OF APPEALS DISREGARDED THE EVIDENCE ON RECORD WHEN IT RULED THAT THE SELECTION OF THE PRIVATE RESPONDENT FOR REDUNDANCY WAS TAINTED WITH BAD FAITH.

B. THE COURT OF APPEALS DISREGARDED THE EVIDENCE ON RECORD WHEN IT RULED THAT THE SELECTION OF THE PRIVATE RESPONDENT WAS NOT DONE IN ACCORDANCE WITH ANY FAIR AND REASONABLE CRITERIA.

II.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH THE LAW IN AFFIRMING THE RULING OF THE NLRC HOLDING THE INDIVIDUAL PETITIONERS RAUL CASTRO AND MARILES GUSTILO LIABLE TO THE PRIVATE RESPONDENT WHEN THE SAID CORPORATE OFFICERS HAVE PERSONALITIES THAT ARE DISTINCT AND SEPARATE FROM LOWE, AND WHEN THERE IS EVEN NO EVIDENCE IN THE RECORDS SHOWING THAT THEY EFFECTED THE TERMINATION OF THE PRIVATE RESPONDENT WITH MALICE OR BAD FAITH.

III.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH THE LAW IN AFFIRMING THE RULING OF THE NLRC HOLDING THE PETITIONERS LIABLE TO THE PRIVATE RESPONDENT (FOR) MORAL DAMAGES.[14]

In G.R. No. 174590, Lowe raises the sole issue:

the Court of Appeals decided a question of substance in a way not in accord with law and the applicable decisions of the Supreme Court when it ruled that the private respondent is entitled to backwages computed from the time of her dismissal up to the time of finality of its decision.[15]

The Court’s Ruling

The petitions are meritorious.

As a general rule, a petition for review on certiorari under Rule 45 of the Rules of Court is limited to questions of law. However, this rule admits of exceptions,[16] such as in this case where the findings of the Labor Arbiter vary from the findings of the NLRC and the Court of Appeals.

Mutuc was validly dismissed by reason of redundancy

Redundancy, which is one of the authorized causes for the dismissal of an employee, is governed by Article 283 of the Labor Code which provides:

Art. 283. Closure of establishment and reduction of personnel. - The employer may also terminate the employment of any employee due to installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the worker and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses and financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered as one (1) whole year.

Redundancy exists when the service of an employee is in excess of what is reasonably demanded by the actual requirements of the business.[17] A redundant position is one rendered superfluous by any number of factors, such as overhiring of workers, decreased volume of business, dropping of a particular product line previously manufactured by the company or phasing out of a service activity formerly undertaken by the enterprise.[18]

For a valid implementation of a redundancy program, the employer must comply with the following requisites: (1) written notice served on both the employee and the DOLE at least one month prior to the intended date of termination; (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good faith in abolishing the redundant position; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant.[19]

In this case, there is no dispute that, on 28 September 2001, Mutuc was duly advised of the termination of her services on the ground of redundancy.[20] On the same date, the DOLE was also served a copy of Mutuc’s notice of termination.[21] Likewise, Lowe made available to Mutuc her separation pay equivalent to one month salary for every year of service and her proportionate 13^th month pay upon completion of her clearance. However, Mutuc did not accomplish her clearance and instead filed a complaint for illegal dismissal.

The controversy lies on whether Lowe used any fair and reasonable criteria in declaring Mutuc’s position redundant and whether there was bad faith in the abolition of her position.

Lowe insists that it used fair and reasonable criteria in declaring Mutuc’s position redundant. Lowe argues that Mutuc was the most junior of all the executives of Lowe and that, based on its performance evaluation,[22] Mutuc was also the least efficient among the Creative Directors.

Mutuc maintains that she was dismissed from the service because of her “rift” with Castro. Mutuc claims that Lowe singled her out and “just included” her position in the redundancy program to cover up her illegal dismissal.

The Court recognizes that a host of relevant factors comes into play in determining who among the employees should be retained or separated.[23] Among the accepted criteria in implementing a redundancy program are: (1) preferred status; (2) efficiency; and (3) seniority.[24]

We agree with the Labor Arbiter that Lowe employed fair and reasonable criteria in declaring Mutuc’s position redundant. Mutuc, who was hired only on 23 June 2000, did not deny that she was the most junior of all the executices of Lowe. Mutuc also did not present contrary evidence to disprove that she was the least efficient and least competent among all the Creative Directors.

The determination of the continuing necessity of a particular officer or position in a business corporation is a management prerogative, and the courts will not interfere unless arbitrary or malicious action on the part of management is shown.[25] It is also within the exclusive prerogative of management to determine the qualification and fitness of an employee for hiring and firing, promotion or reassignment.[26] Indeed, an employer has no legal obligation to keep more employees than are necessary for the operation of its business.[27]

Besides, the fact that the functions of Mutuc were simply added to the duties of the other Creative Directors does not affect the legitimacy of Lowe’s right to abolish a position when done in the normal exercise of its prerogative to adopt sound business practices in the management of its affairs.[28]

Considering further that Mutuc held a position which was definitely managerial in character, Lowe had a broad latitude of discretion in abolishing her position. An employer has a much wider discretion in terminating the employment of managerial personnel as compared to rank and file employees.[29] The reason is that officers in such key positions perform not only functions which by nature require the employer’s full trust and confidence but also functions that spell the success or failure of a business.[30]

Aside from Mutuc’s self-serving statements, we find no evidence to support her conclusion that she was dismissed because of the “rift” with Castro. We agree with the Labor Arbiter that Lowe was motivated by good faith in declaring Mutuc’s position redundant since it was acting pursuant to a business decision dictated by the prevailing economic environment.

Mutuc is entitled only to separation pay and proportionate 13^th month pay

We affirm the award of the Labor Arbiter of separation pay equivalent to one month salary for every year of service amounting to P100,000. We also affirm the award of the Labor Arbiter of Mutuc’s proportionate 13^th month pay with modification that it be computed from the period of 1 January 2001 to 31 October 2001 amounting to P83,333.

The issue on the proper computation of Mutuc’s backwages has been rendered moot by our decision that Mutuc was validly dismissed. Backwages is a relief given to an illegally dismissed employee.[31] Since Mutuc’s dismissal is for an authorized cause, she is not entitled to backwages.

We likewise delete the award of moral damages as there was no clear and convincing evidence showing that Lowe’s termination of Mutuc’s services was done in an arbitrary, capricious, or malicious manner.

Gustilo and Castro are not liable for the monetary awards

Gustilo and Castro argue that, in the absence any evidence of bad faith, they should not be made personally liable for the monetary awards to Mutuc.

It is settled that in the absence of malice, bad faith, or specific provision of law, a director or an officer of a corporation cannot be made personally liable for corporate liabilities.[32] In Mcleod v. NLRC,[33] we said:

To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers, and employees are its sole liabilities.

Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action.[34] (Emphasis supplied)

Gustilo and Castro, as corporate officers of Lowe, have personalities which are distinct and separate from that of Lowe’s. Hence, in the absence of any evidence showing that they acted with malice or in bad faith in declaring Mutuc’s position redundant, Gustilo and Castro are not personally liable for the monetary awards to Mutuc.

WHEREFORE, we GRANT petitioner Lowe, Inc.’s petition in G.R. No. 164813 and AFFIRM the 15 August 2002 Decision of the Labor Arbiter with the MODIFICATION that petitioner Lowe, Inc. is ordered to pay respondent Irma M. Mutuc P83,333.33 representing her proportionate 13^th month pay for the period of 1 January 2001 to 31 October 2001. We DENY petitioner Lowe, Inc.’s petition in G.R. No. 174590 for being moot.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Chief Justice

Chairperson

RENATO C. CORONA TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

LUCAS P. BERSAMIN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice

[1] Rollo (G.R. No. 164813), pp. 234-245. Penned by Commissioner Tito F. Genilo, with Presiding Commissioner Lourdes C. Javier and Commissioner Ernesto C. Verceles, concurring.

[2] Lowe, Inc. was formerly known as Lowe Lintas & Partners.

[3] Under Rule 45 of the Rules of Court.

[4] Rollo (G.R. No. 164813), pp. 55-63. Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Mercedes Gozo-Dadole and Rosmari D. Carandang, concurring.

[6] Under Rule 45 of the Rules of Court.

[7] Rollo (G.R. No. 174590), pp. 41-47. Penned by Associate Justice Mariflor P. Punzalan Castillo, with Associate Justices Elvi John S. Asuncion and Noel G. Tijam, concurring.

[9] Sometimes appears in the records as “Ma. Elizabeth L. Gustilo” and “Gustillo.”

[10] Rollo (G.R. No. 164813), pp. 212-213. Penned by Labor Arbiter Napoleon M. Menese.

[13] Rollo (G.R. No. 174590), p. 46.

[14] Rollo (G.R. No. 164813), p. 23.

[15] Rollo (G.R. No. 174590), p. 18.

[16] Endico v. Quantum Foods Distribution Center, G.R. No. 161615, 30 January 2009; Eastern Telecommunications Philippines, Inc. v. Diamse, G.R. No. 169299, 16 June 2006, 491 SCRA 239.

[17] Wiltshire File Co., Inc. v. National Labor Relations Commission, G.R. No. 82249, 7 February 1991, 193 SCRA 665; Asian Alcohol Corporation v. National Labor Relations Commission, 364 Phil. 912 (1999).

[19] Asian Alcohol Corporation v. National Labor Relations Commission, supra.

[20] Rollo (G.R. No. 164813), p. 91.

[23] Coats Manila Bay, Inc. v. Ortega, G.R. No. 172628, 13 February 2009.

[24] AMA Computer College, Inc. v. Garcia, G.R. No. 166703, 14 April 2008, 551 SCRA 254; Asufrin, Jr. v. San Miguel Corporation, 469 Phil. 237 (2004).

[25] Wiltshire File Co., Inc. v. National Labor Relations Commission, supra note 17, citing International Harvester Macleod, Inc. v. Intermediate Appellate Court, 233 Phil. 655 (1987).

[26] Almodiel v. National Labor Relations Commission, G.R. No. 100641, 14 June 1993, 223 SCRA 341.

[27] Wiltshire File Co., Inc. v. National Labor Relations Commission, supra.

[28] Almodiel v. National Labor Relations Commission, supra.

[29] Almodiel v. National Labor Relations Commission, supra; Wiltshire File Co., Inc. v. National Labor Relations Commission, supra, citing D.M. Consunji, Inc. v. National Labor Relations Commission, 227 Phil. 192 (1986).

[30] Almodiel v. National Labor Relations Commission, supra.

[31] Smart Communications, Inc. v. Astorga, G.R. No. 148132, 28 January 2008, 542 SCRA 434; Filflex Industrial & Manufacturing Corporation v. National Labor Relations Commission, 349 Phil. 913 (1998).

[32] Carag v. National Labor Relations Commission, G.R. No. 147590, 2 April 2007, 520 SCRA 28; Land Bank of the Philippines v. Court of Appeals, 416 Phil. 774 (2001); Complex Electronics Employees Association v. National Labor Relations Commission, 369 Phil. 666 (1999).

[33] G.R. No. 146667, 23 January 2007, 512 SCRA 222.