DANZAS INTERNATIONAL V. DAGUMAN (LABOR)

FACTS: Petitioners aver that they were compelled to close the company's brokerage department, to which losses were alleged traceable due to incorrect handling of sales, in order to prevent further losses which threatened the company's viability. Essentially, petitioners invoke a blend of retrenchment to prevent losses and closure of a section of the company's business to justify the termination of private respondents.

HELD: UNJUSTIFIED TERMINATION, either as retrenchment to prevent losses because petitioners' evidence to prove business losses or closure of the establishment because the brokerage department did not actually cease operations.

The condition of business losses justifying retrenchment is normally shown by audited financial documents as well as annual income tax returns. Financial statements must be prepared and signed by independent auditors otherwise, they may be assailed as self-serving. Parenthetically, if the business losses that justify the closure of the establishment are duly proved, the right of affected employees to separation pay is lost for obvious reasons. Otherwise, the employer closing his business is obligated to pay his employees their separation pay.

PHILIPPINE CARPET V. STO TOMAS (LABOR)

FACTS: A Memorandum was issued informing all employees that a comprehensive cost reduction program would be implemented by the corporation "on account of depressed business conditions brought about by currency crisis and the 9/11 incident." After the retrenchment program was implemented, more than 200 new workers were hired, including some who have been retrenched, and some were promoted.

HELD: The corporation failed to adduce clear and convincing evidence to prove the confluence of the essential requisites for a valid retrenchment of its employees. It acted in bad faith in terminating the employment of the members of the union.

The requirements are:

1. that the retrenchment is reasonably necessary and likely to prevent business losses which if already incurred, are not merely de minimis, but substantial, serious, actual, and real or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;
2. that the employer served written notice both to the employees and DOLE at least 1 month prior to the intended date of retrenchment;
3. that the employer pays the retrenched employees separation pay for every year of service, whichever is higher;
4. that the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent employees' right to security of tenure; and
5. that the employer used fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

FILIPINAS V. GATBALAYAN (LABOR)

FACTS: Another illegal dismissal case by the workers who were terminated due to massive retrenchment of the company to forestall serious business losses and/or closure of operations.

ISSUE: Under what circumstances does the employer become legally privileged to retrench and reduce the number of employees?

HELD: The following are general standards in terms of which the acts of employer must be appraised:

1. The losses expected should be substantial and not merely de minimis in extent.
2. The substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer.
3. It must be reasonably necessary and likely to effectively prevent the expected losses.
4. The alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proven by sufficient and convincing evidence.

To impart operational meaning to the constitutional policy of providing full protection to labor, the employer's prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means, e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc.