FASAP, or the Flight Attendants and Stewards Association of the Philippines, has long been fighting the case of illegal retrenchment against PAL.

The case has caught the attention of the public after several publicized rulings in the past and legal jousts carried out by parties involved.

In a March 13, 2018 Decision, the Supreme Court resolved the issue on both procedural and substantive grounds. Is the second motion for reconsideration allowed? Is the re-raffle unconstitutional? Is the retrenchment of employees involved valid considering the company failed to submit its audited FS?

If so, can the Court take judicial notice of rehabilitation proceeding? Does this apply in labor case?

Learn the rules on Retrenchment. Get a copy of the Guide to Valid Dismissal of Employees Second Edition.

Hence, the SC ruled as follows:

Flight Attendants and Stewards Association of the Philippines (FASAP) Vs. Philippine Airlines, Inc., Patria Chiong and The Court of Appeals/In Re: Letters of Atty. Estelito P. Mendoza Re: G.R. No. 178083 – Flight Attendants of the Philippines (FASAP) vs. Philippine Airlines, Inc., et al.

G.R. No. 178083/A.M. No. 11-10-1-SC, March 13, 2018


PAL retrenched cabin crew personnel in a retrenchment and demotion scheme of June 15, 1998 which was made effective on July 15, 1998.

The Labor Arbiter’s found the retrenchment illegal. However, the NLRC set aside the Labor Arbiter’s findings of illegal retrenchment.

The CA affirmed on August 23, 2006 the Decision of the NLRC. The CA likewise denied the motion for reconsideration.

FASAP appealed to the Supreme Court (SC). Resolving the appeal of FASAP, the Third Division of the SC promulgated its decision on July 22, 2008 reversing the decision promulgated on August 23, 2006 by the Court of Appeals (CA) and entering a new one finding PAL guilty of unlawful retrenchment.

The SC Third Division differed from the decision of the Court of Appeals (CA), which had pronounced in its appealed decision promulgated on August 23, 20066 that the remaining issue between the parties concerned the manner by which PAL had carried out the retrenchment program.

Instead, the SC Third Division disbelieved the veracity of PAL’s claim of severe financial losses, and concluded that PAL had not established its severe financial losses because of its non-presentation of audited financial statements. It further concluded that PAL had implemented the retrenchment program in bad faith, and had not used fair and reasonable criteria in selecting the employees to be retrenched.

After PAL filed its Motion for Reconsideration, the Court, upon motion, held oral arguments. Upon conclusion of the oral arguments, the Court directed the parties to explore a possible settlement and to submit their respective memoranda. The parties did not reach any settlement; hence, the SC, through the Special Third Division, resolved the issues on the merits through the resolution of October 2, 2009 denying PAL’s motion for reconsideration.

The SC Special Third Division was unconvinced by PAL’s change of theory in urging the June 1998 Association of Airline Pilots of the Philippines (ALPAP) pilots’ strike as the reason behind the immediate retrenchment; and observed that the strike was a temporary occurrence that did not require the immediate and sweeping retrenchment of around 1,400 cabin crew.

Not satisfied, PAL filed the Motion for Reconsideration of the Resolution of October 2, 2009 and Second Motion for Reconsideration of the Decision of July 22, 2008.

On October 5, 2009, the writer of the resolution of October 2, 2009, Justice Consuelo Ynares-Santiago, compulsorily retired from the Judiciary. Pursuant to A.M. No. 99-8-09-SC, G.R. No. 178083 was then raffled to Justice Presbitero J. Velasco, Jr., a Member of the newly-constituted regular Third Division.

Upon the SC’s subsequent reorganization, G.R. No. 178083 (instant petition before the SC) was transferred to the First Division where Justice Velasco, Jr. was meanwhile re-assigned. Justice Velasco, Jr. subsequently inhibited himself from the case due to personal reasons. Pursuant to SC Administrative Circular No. 84-2007, G.R. No. 178083 was again re-raffled to Justice Arturo D. Brion, whose membership in the Second Division resulted in the transfer of G.R. No. 178083 to said Division.

On September 7, 2011, the Second Division denied with finality PAL’s Second Motion for Reconsideration of the Decision of July 22, 2008. Thereafter, PAL, through Atty. Estelito P. Mendoza, its collaborating counsel, sent a series of letters inquiring into the propriety of the successive transfers of G.R. No. 178083. His letters were docketed as A.M. No. 11-10-1-SC.

On October 4, 2011, the Court En Banc issued a resolution: (a) assuming jurisdiction over G.R. No. 178083; (b) recalling the September 7, 2011 resolution of the Second Division; and (c) ordering the re-raffle of G.R. No. 178083 to a new Member-in-Charge.

Resolving the issues raised by Atty. Mendoza in behalf of PAL, as well as the issues raised against the recall of the resolution of September 7, 2011, the Court En Banc promulgated its resolution in A.M. No. 11-10-1-SC on March 13, 2012,23 in which it summarized the intricate developments involving G.R. No. 178083.

In the same resolution of March 13, 2012, the SC En Banc directed the re-raffle of G.R. No. 178083 to the remaining Justices of the former Special Third Division who participated in resolving the issues pursuant to Section 7, Rule 2 of the Internal Rules of the Supreme Court (IRSC).

This last resolution impelled FASAP to file the Motion for Reconsideration [Re: The Honorable Court’s Resolution dated 13 March 2012], praying that the September 7, 2011 resolution in G.R. No. 178083 be reinstated.

The SC directed the consolidation of G.R. No. 178083 and A.M. No. 11-10-1-SC on April 17, 2012.

FASAP contends that a second motion for reconsideration was a prohibited pleading; that PAL failed to prove that it had complied with the requirements for a valid retrenchment by not submitting its audited financial statements; that PAL had immediately terminated the employees without prior resort to less drastic measures; and that PAL did not observe any criteria in selecting the employees to be retrenched. FASAP stresses that the October 4, 2011 resolution recalling the September 7, 2011 decision was void for failure to comply with Section 14, Article VIII of the 1987 Constitution; that the participation of Chief Justice Renato C. Corona who later on inhibited from G.R. No. 178083 had further voided the proceedings; that the 1987 Constitution did not require that a case should be raffled to the Members of the Division who had previously decided it; and that there was no error in raffling the case to Justice Brion, or, even granting that there was error, such error was merely procedural.


Whether or not the SC resolution directing the re-raffle of the case is void

Whether or not the SC may entertain the second motion for reconsideraton of PAL

Whether or not the retrenchment of 1,400 cabin crew personnel was valid

Whether or not submission of audited financial statement is still required when complainants admitted the loss

Whether or not judicial notice applies in this case

Whether or not rehiringof some of the retrenched employees after the company under rehabilitation has recovered indicates bad faith in retrenchment

Whether or not execution of quitclaim is illegal

SC Ruling:

The SC granted PAL’s Motion for Reconsideration of the Resolution of October 2, 2009 and Second Motion for Reconsideration of the Decision of July 22, 2008 filed by PAL and Chiong; and DENY the Motion for Reconsideration [Re: The Honorable Court’s Resolution dated 13 March 2012] of FASAP.

Accordingly, the SC reversed the July 22, 2008 decision and the October 2, 2009 resolution; and affirmed the decision promulgated on August 23, 2006 by the CA.

FASAP urges the SC to declare as void the October 4, 2011 resolution promulgated in A.M. No. 11-10-1-SC for not citing any legal basis in recalling the September 7, 2011 resolution of the Second Division.

The SC held that the urging of FASAP is gravely flawed and mistaken. The requirement for the Court to state the legal and factual basis for its decisions is found in Section 14, Article VIII of the 1987 Constitution which states that no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based.

The constitutional provision clearly indicates that it contemplates only a decision, which is the judgment or order that adjudicates on the merits of a case. This is clear from the text and tenor of Section 1, Rule 36 of the Rules of Court, the rule that implements the constitutional provision. The October 4, 2011 resolution did not adjudicate on the merits of G.R. No. 178083.

Citing the resolution of March 13, 2012 the SC held that it was resolved to exercise the Court’s inherent power to recall orders and resolutions before they attain finality. In so doing, the Court only exercised prudence in order to ensure that the Second Division was vested with the appropriate legal competence in accordance with and under the Court’s prevailing internal rules to review and resolve the pending motion for reconsideration.

The factual considerations for issuing the recall order were intentionally omitted therefrom in obeisance to the prohibition against public disclosure of the internal deliberations of the Court.

With the SC resolution of January 20, 2010 granting PAL’s motion for leave to file a second motion for reconsideration, PAL’s Second Motion for Reconsideration of the Decision of July 22, 2008 could no longer be challenged as a prohibited pleading. It is already settled that the granting of the motion for leave to file and admit a second motion for reconsideration authorizes the filing of the second motion for reconsideration. Thereby, the second motion for reconsideration is no longer a prohibited pleading, and the Court cannot deny it on such basis alone.

Nonetheless, the rule prohibiting the filing of a second motion for reconsideration is by no means absolute. Although Section 2, Rule 52 of the Rules of Court disallows the filing of a second motion for reconsideration, the Internal Rules of the Supreme Court (IRSC) allows an exception. Any exception to this rule can only be granted in the higher interest of justice by the Court en bane upon a vote of at least two-thirds of its actual membership.

A second motion for reconsideration can only be entertained before the ruling sought to be reconsidered becomes final by operation of law or by the Court’s declaration. Under the IRSC, a second motion for reconsideration may be allowed to prosper upon a showing by the movant that a reconsideration of the previous ruling is necessary in the higher interest of justice. There is higher interest of justice when the assailed decision is not only legally erroneous, but is likewise patently unjust and potentially capable of causing unwarranted and irremediable injury or damage to the parties.

PAL maintains that the July 22, 2008 decision contravened prevailing jurisprudence that had recognized its precarious financial condition; that the decision focused on PAL’ s inability to prove its financial losses due to its failure to submit audited financial statements; that the decision ignored the common findings on the serious financial losses suffered by PAL made by the Labor Arbiter, the NLRC, the CA and even the SEC; and that the decision and the subsequent resolution denying PAL’s motion for reconsideration would negate whatever financial progress it had achieved during its rehabilitation.

For the SC, these arguments of PAL sufficed to show that the assailed decision contravened settled jurisprudence on PAL’s precarious financial condition. It cannot be gainsaid that there were other businesses undergoing rehabilitation that would also be bound or negatively affected by the July 22, 2008 decision. This was the higher interest of justice that the Court sought to address, which the dissent by Justice Leonen is adamant not to accept. Hence, the SC deemed it just and prudent to allow PAL’s Second Motion for Reconsideration of the Decision of July 22, 2008.

The July 22, 2008 decision did not yet attain finality. The October 4, 2011 resolution recalled the September 7, 2011 resolution denying PAL’s first motion for reconsideration. Consequently, the July 22, 2008 decision did not attain finality. The granting of PAL’s motion for leave to file a second motion for reconsideration has the effect of preventing the challenged decision from attaining finality. This is the reason why the second motion for reconsideration should present extraordinarily persuasive reasons. Indeed, allowing pro forma motions would indefinitely avoid the assailed judgment from attaining finality.

By granting PAL’s motion for leave to file a second motion for reconsideration, the Court effectively averted the July 22, 2008 decision and the October 2, 2009 resolution from attaining finality. Worthy of reiteration, too, is that the March 13, 2012 resolution expressly recalled the September 7, 2011 resolution.

The September 11, 2011 resolution denying PAL’s second motion for reconsideration had been recalled by the October 4, 2011 resolution. Hence, PAL’s motion for reconsideration remained unresolved, negating the assertion of the dissent that the Court was resolving the second motion for reconsideration “for the second time.”

The Banc could not have assumed jurisdiction were it not for the initiative of Justice Arturo V. Brion who consulted the Members of the ruling Division as well as Chief Justice Corona regarding the jurisdictional implications of the successive retirements, transfers, and inhibitions by the Members of the ruling Division. This move by Justice Brion led to the referral of the case to the Banc in accordance with Section 3(1), Rule 2 of the IRSC that provided, among others, that any Member of the Division could request the Court En Banc to take cognizance of cases that fell under paragraph (m). This referral by the ruling Division became the basis for the Banc to issue its October 4, 2011 resolution.

The Banc, by assuming jurisdiction over the case, did not seek to act as appellate body in relation to the acts of the ruling Division, contrary to the dissent’s position. The Banc’s recall of the resolution of September 7, 2011 should not be so characterized, considering that the Banc did not thereby rule on the merits of the case, and did not thereby reverse the July 22, 2008 decision and the October 2, 2009 resolution. The referral of the case to the Banc was done to address the conflict among the provisions of the IRSC that had potential jurisdictional implications on the ruling made by the Second Division.

The serious challenge by PAL against the ruling of the Third Division was anchored on the Third Division’s having ignored or reversed settled doctrines or principles of law, only the Banc could assume jurisdiction and decide to either affirm, reverse or modify the earlier decision.

Retrenchment or downsizing is a mode of terminating employment initiated by the employer through no fault of the employee and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression or seasonal fluctuations or during lulls over shortage of materials. It is a reduction in manpower, a measure utilized by an employer to minimize business losses incurred in the operation of its business.

Accordingly, the employer may resort to retrenchment in order to avert serious business losses. To justify such retrenchment, the following conditions must be present, namely: 1. The retrenchment must be reasonably necessary and likely to prevent business losses; 2. The losses, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or, if only expected, are reasonably imminent; 3. The expected or actual   losses must be proved by sufficient and convincing evidence; 4. The retrenchment must be in good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; and 5. There must be fair and reasonable criteria m 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.

The SC held further that it is quite notable that the matter of PAL’s financial distress had originated from the complaint filed by FASAP whereby it raised the sole issue of “Whether or not respondents committed Unfair Labor Practice.” FASAP believed that PAL, in terminating the 1,400 cabin crew members, had violated Section 23, Article VII and Section 31, Article IX of the 1995-2000 PAL-FASAP CBA. FASAP averred in its position paper therein that it was not opposed to the retrenchment program because it understood PAL’ s financial troubles; and that it was only questioning the manner and lack of standard in carrying out the retrenchment.

Evidently, FASAP’s express recognition of PAL’s grave financial situation meant that such situation no longer needed to be proved, the same having become a judicial admission in the context of the issues between the parties. As a rule, indeed, admissions made by parties in the pleadings, or in the course of the trial or other proceedings in the same case are conclusive, and do not require further evidence to prove them. By FASAP’s admission of PAL ‘s severe financial woes, PAL was relieved of its burden to prove its dire financial condition to justify the retrenchment. Thusly, PAL should not be taken to task for the non-submission of its audited financial statements in the early part of the proceedings inasmuch as the non-submission had been rendered irrelevant.

Yet, the July 22, 2008 decision ignored the judicial admission and unfairly focused on the lack of evidence of PAL’s financial losses. The Special Third Division should have realized that PAL had been discharged of its duty to prove its precarious fiscal situation in the face of FASAP’s admission of such situation. Indeed, PAL did not have to submit the audited financial statements because its being in financial distress was not in issue at all.

The July 22, 2008 decision recognized that PAL underwent corporate rehabilitation. In seeming inconsistency, however, the Special Third Division refused to accept that PAL had incurred serious financial losses. Indeed, that a company undergoes rehabilitation sufficiently indicates its fragile financial condition.

After having been placed under corporate rehabilitation and its rehabilitation plan having been approved by the SEC on June 23, 2008, PAL’s dire financial predicament could not be doubted. Incidentally, the SEC’s order of approval came a week after PAL had sent out notices of termination to the affected employees. It is thus difficult to ignore the fact that PAL had then been experiencing difficulty in meeting its financial obligations long before its rehabilitation.

The presentation of the audited financial statements should not the sole means by which to establish the employer’s serious financial losses. The presentation of audited financial statements, although convenient in proving the unilateral claim of financial losses, is not required for all cases of retrenchment. The evidence required for each case of retrenchment really depends on the particular circumstances obtaining. To require a distressed corporation placed under rehabilitation or receivership to still submit its audited financial statements may become unnecessary or superfluous.

The employer is burdened to observe good faith in implementing a retrenchment program. Good faith on its part exists when the retrenchment is intended for the advancement of its interest and is not for the purpose of defeating or circumventing the rights of the employee under special laws or under valid agreements.

PAL could not have been motivated by ill will or bad faith when it decided to terminate FASAP’s affected members. On the contrary, good faith could be justly inferred from PAL’s conduct before, during and after the implementation of the retrenchment plan.’ Notable in this respect was PAL candor towards FASAP regarding its plan to implement the retrenchment program. This impression is gathered from PAL’s letter dated February 11, 1998 inviting FASAP to a meeting to discuss the matter.

The records also show that the parties met on several occasions to explore cost-cutting measures, including the implementation of the retrenchment program. PAL likewise manifested that the retrenchment plan was temporarily shelved while it implemented other measures (like termination of probationary cabin attendant, and work-rotations).

As between maintaining the number of its flight crew and PAL’s survival, it was reasonable for PAL to choose the latter alternative. The Court cannot legitimately force PAL as a distressed employer to maintain its manpower despite its dire financial condition. To be sure, the right of PAL as the employer to reasonable returns on its investments and to expansion and growth is also enshrined in the 1987 Constitution. Thus, although labor is entitled to the right to security of tenure, the State will not interfere with the employer’s valid exercise of its management prerogative.

According to SC, PAL used fair and reasonable criteria in selecting the employees to be retrenched pursuant to the CBA.

In selecting the employees to be dismissed, the employer is required to adopt fair and reasonable criteria, taking into consideration factors like: (a) preferred status; (b) efficiency; and (c) seniority, among others. The requirement of fair and reasonable criteria is imposed on the employer to preclude the occurrence of arbitrary selection of employees to be retrenched. Absent any showing of bad faith, the choice of who should be retrenched must be conceded to the employer for as long as a basis for the retrenchment exists.

The Court will only strike down the retrenchment of an employee as capricious, whimsical, arbitrary, and prejudicial in the absence of a clear-cut and uniform guideline followed by the employer in selecting him or her from the work pool. Following this standard, PAL validly implemented its retrenchment program.

PAL resorted to both efficiency rating and inverse seniority in selecting the employees to be subject of termination. As the NLRC keenly pointed out, the “ICCD Masterank 1997 Ratings -Seniority Listing” submitted by PAL sufficiently established the criteria for the selection of the employees to be laid off. To insist on seniority as the sole basis for the selection would be unwarranted, it appearing that the applicable CBA did not establish such limitation. This counters the statement in the dissent that the retrenchment program was based on unreasonable standards without regard to service, seniority, loyalty and performance.

To require PAL to further limit its criteria would be inconsistent with jurisprudence and the principle of fairness. Instead, we hold that for as long as PAL followed a rational criteria defined or set by the CBA and existing laws and jurisprudence in determining who should be included in the retrenchment program, it sufficiently met the standards of fairness and reason in its implementation of its retrenchment program.

The rehiring of previously retrenched employees should not invalidate a retrenchment program, the rehiring being an exercise of the employer’s right to continue its business. Consequently, the Court could not pass judgment on the motive behind PAL’s initiative to implement “Plan 22” (led to the recall/rehire of some of the retrenched employees) instead of “Plan 14.” The prerogative thereon belonged to the management alone due to its being in the best position to assess its own financial situation and operate its own business. Even the Court has no power to interfere with such exercise of the prerogative.

Citing EDI Staffbuilders International, Inc. vs. National Labor Relations Commission, the SC held that it laid down the basic contents of valid and effective quitclaims and waivers. To prevent disputes on the validity and enforceability of quitclaims and waivers of employees under Philippine laws, said agreements should contain the following: 1. A fixed amount as full and final compromise settlement; 2. The benefits of the employees if possible with the corresponding amounts, which the employees arc giving up in consideration of the fixed compromise amount; 3. A statement that the employer has dearly explained to the employee in English, Filipino, or in the dialect known to the employees -that by signing the waiver or quitclaim, they are forfeiting or relinquishing their right to receive the benefits which are due them under the law; and 4. A statement that the employees signed and executed the document voluntarily, and had fully understood the contents of the document and that their consent was freely given without any threat, violence, duress, intimidation, or undue influence exerted on their person.

The release and quitclaim signed by the affected employees substantially satisfied the aforestated requirements. The consideration was clearly indicated in the document in the English language, including the benefits that the employees would be relinquishing in exchange for the amounts to be received.

There is no question that the employees who had occupied the position of flight crew knew and understood the English language. Hence, they fully comprehended the terms used in the release and quitclaim that they signed. Indeed, not all quitclaims are per se invalid or against public policy. A quitclaim is invalid or contrary to public policy only: (1) where there is clear proof that the waiver was wrangled from an unsuspecting or gullible person; or (2) where the terms of settlement are unconscionable on their face.

Based on these standards, the SC upheld the release and quitclaims signed by the retrenched employees herein.

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