FINANCIAL STATEMENTS THAT ARE INCOMPLETE BUT DULY EXPLAINED BY EXTERNAL AUDITOR AND ACCOMPANIED BY CONSOLIDATED STATEMENTS CAN PROVE VALIDITY OF RETRENCHMENT

Financial statements must be presented to prove validity of retrenchment based on losses. However, the fact that the FS is incomplete but clearly explained by the external auditor and accompanied with consolidated statements can prove validity of retrenchment.

The Supreme Court held in the following case: 

Purisimo M. Cabaobas, et al. vs. Pepsi-Cola Products Philippines, Inc.
G.R. No. 176908, March 25, 2015

Facts:

In 1999, Pepsi-Cola Products Philippines, Inc. (Pepsi) Tanauan Plant allegedly incurred business losses in the total amount of P29,167,390.00 Pesos. To avert further losses, PEPSI implemented a company-wide retrenchment program denominated as Corporate-wide Rightsizing Program (CRP) from 1999 to 2000, and retrenched forty-seven (47) employees of its Tanauan Plant on July 31, 1999.

On September 24, 1999, twenty-seven (27) of said employees, led by Anecito Molon (Molon, et al.), filed complaints for illegal dismissal before the NLRC which were docketed as NLRC RAB Cases Nos. VIII-9-0432-99 to 9-0458-99, entitled “Molon, et al. v. Pepsi-Cola Products, Philippines, Inc.”

On January 15, 2000, Complainants, who are permanent and regular employees of the Tanauan Plant, received their respective letters, informing them of the cessation of their employment on February 15, 2000, pursuant to PEPSI’s CRP. Complainants then filed their respective complaints for illegal dismissal before the National Labor Relations Commission Regional Arbitration Branch No. VIII in Tacloban City.

Complainants alleged that PEPSI was not facing serious financial losses because after their termination, it regularized four (4) employees and hired replacements for the forty-seven (47) previously dismissed employees. They also alleged that PEPSI’s CRP was just designed to prevent their union, Leyte Pepsi-Cola Employees Union-Associated Labor Union (LEPCEU-ALU), from becoming the certified bargaining agent of PEPSI’s rank-and-file employees.

PEPSI countered that Complainants were dismissed pursuant to its CRP to save the company from total bankruptcy and collapse; thus, it sent notices of termination to them and to the Department of Labor and Employment. In support of its argument that its CRP is a valid exercise of management prerogative, PEPSI submitted audited financial statements showing that it suffered financial reverses in 1998 in the total amount of P700,000,000.00 PESOS, P27,000,000.00 PESOS of which was allegedly incurred in the Tanauan Plant in 1999.

LA Ruling:

The Labor Arbiter rendered a Decision finding the dismissal of Complainants as illegal.

PEPSI appealed from the Decision of the Labor Arbiter to the Fourth Division of the NLRC of Tacloban City.

NLRC Ruling:

Meanwhile, the NLRC consolidated all other cases involving PEPSI and its dismissed employees.

The NLRC rendered a Consolidated Decision nullifying the Executive Labor Arbiter’s, and DISMISSING the complaints for illegal dismissal, and in its stead declaring the retrenchment program of Pepsi pursuant to its CRP, a valid exercise of management prerogatives.

The NLRC also ordered Pepsi to pay the complainants their package separation benefits of 1 & ½ months salary for every year of service, plus commutation of all vacation and sick leave credits in the respective amounts hereunder indicated opposite their names.

Complainants and PEPSI filed their respective motions for reconsideration of the consolidated decision, which the NLRC denied in a Resolution. Dissatisfied, Complainants filed a petition for certiorari with the CA.

CA Ruling:

The CA rendered a Decision, denying their petition and affirming the NLRC Decision. The CA issued a Resolution denying Complainants’ motion for reconsideration.

Issue/s:

Whether or not the incomplete financial statements of external auditor are sufficient to prove losses as basis for retrenchment if supported with explanation and consolidated statements

SC Ruling:

The Supreme Court did not find merit in the petition.

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Given that the financial statements are incomplete, the independent auditing firm, SGV & Co., aptly explained nonetheless that they were derived from the PEPSI’s accounting records, and were subject to further adjustments upon the completion of the audit of financial statements of the company taken as a whole, which was then in progress.

The letter of SGV & Co., accompanied by a consolidated Statement of Income and Deficit showing a net loss of P29,167,000. in the company’s Tanauan Operations as of June 30, 1999, and P22,328,000 as of June 2000, is sufficient and convincing proof of serious business losses which justified PEPSI’s retrenchment program.

The settled rule in quasi-judicial proceedings is that proof beyond reasonable doubt is not required in determining the legality of an employer’s dismissal of an employee, and not even a preponderance of evidence is necessary, as substantial evidence is considered sufficient.

Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.

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