LOSS OF TRUST AND CONFIDENCE ARISES WHERE THE MANAGERIAL EMPLOYEE TRANSFERS FUNDS WITHOUT AUTHORITY ALTHOUGH THEY WERE NOT MADE FOR PERSONAL USE

Loss of trust and confidence will validate an employee’s dismissal when it is shown that: (a) the employee concerned holds a position of trust and confidence; and (b) he performs an act that would justify such loss of trust and confidence.

Moreover, certain guidelines must be observed for the employer to cite loss of trust and confidence as a ground for termination. It is never intended to provide the employer with a blank check for terminating its employees. Neither should it be loosely applied in justifying the termination of an employee nor should it be used as a subterfuge for causes which are improper, illegal, or unjustified.

Thus, the SC held in the following case:

Debra Ann P. Gaite vs. Filipino Society of Composers, et al.
G.R. No. 219324, August 8, 2018

Serious misconduct; Loss of trust and confidence; Transferring funds from special accounts to cover operating expenses without authority of the Board of Directors although the funds were not personally used by manager employee constitutes serious misconduct and loss of trust and confidence; Damage is not an element in determining the sufficient basis for dismissal due to serious misconduct or loss of trust and confidence

Facts:

Respondent Filipino Society of Composers, Authors, and Publishers, Inc. (FILSCAP), collectively enforces the public performance rights granted by law to copyright owners of musical works. In consideration for its authorization of the public performance of copyright works through the issuance of licenses, FILSCAP collects license fees which it then distributes to its members and affiliate foreign societies.

FILSCAP employed petitioner Debra Ann P. Gaite (Gaite) as its General Manager. In 2012, several issues pertaining to Gaite were brought to the attention of FILSCAP’s Board of Trustees which include the following: (1) the erroneous filing of a case against a records company without prior notice to the Board, which eventually resulted in FILSCAP being ordered to pay P1,000,000.00 in damages; (2) her non-disclosure of her receipt of an e-mail inviting one of the board members to a regional digital licensing conference in Taipei; (3) her willful delay in taking action on the collection of proxy forms from members for the May 28, 2011 FILSCAP elections and, consequently, collection of an insufficient number of proxy forms for the said election; (4) her non-disclosure of the complete list of members to a board member who wanted to help in securing the proxy forms; and (5) the appropriation for her personal benefit of show tickets given to FILSCAP, which were supposed to be used for monitoring purposes.

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Before conducting administrative disciplinary proceedings against Gaite, the Board sought the legal opinion of FILSCAP’s external counsel. Thereafter, learning of the issues between FILSCAP and Gaite, the International Confederation of Societies of Authors and Composers (CJSAC), the umbrella organization of copyright societies around the world, advised FILSCAP to settle the matter amicably. Thus, FILSCAP discussed a graceful exit and separation package with Gaite and scheduled the signing of a Release, Waiver, and Quitclaim which provided that FILSCAP would release, waive and discharge Gaite from any and all actions, whether civil, criminal or administrative, or from any and all claims of any kind or character arising out of or in connection with her employment with FILSCAP in exchange for P1,440,386.01.

Days before the scheduled signing, however, FILSCAP discovered that for several fiscal years already, specifically from 2009 to 2011, Gaite had been allowing funds from its Special Accounts to be used to cover the company’s Operating Expenses without the knowledge, consent, authorization of the Board and in contravention of FILSCAP’s Distribution Rules.

FILSCAP pointed out that it is a non-stock, non-profit organization established to protect the interests of composers, lyricists, and music publishers and that from the royalties it receives, it maintained a Special Accounts for undistributed collections. Under its Distribution Rules, these Special Accounts were intended to be held for a certain period until such time that the conditions for their release to a particular person or entity or to a general membership, as the case may be, have been met.

In other words, these funds were held in trust by FILSCAP for the benefit of the rightful owners. But as FILSCAP claimed, it discovered that said Special Accounts were being transferred and credited to cover the shortage in the Operating Expenses resulting in the dwindling of the same, depriving the rightful beneficiaries of the amount appropriately due them. Because of this discovery, FILSCAP decided to defer the settlement with Gaite and in lieu of the Quitclaim-signing, FILSCAP commenced a specific inquiry into the matter.

During said investigation, FILSCAP confirmed Gaite’s unauthorized misappropriation or reallocation, which she committed together with the then Distribution Manager, Mr. Genor Kasiguran, amounting to P17,720,455.77. In fact, she even admitted the same in her email to Board member, Mr. Gary Granada.

In view of said discovery, FILSCAP issued a Show Cause Notice to Gaite dated July 10, 2012 requiring her to explain why no disciplinary sanctions should be imposed on her and likewise placed her under preventive suspension with pay, pending the administrative investigation. In her reply, Gaite denied any misappropriation and informed the Board that she had already filed a case for constructive dismissal against FILSCAP two (2) days after the cancelled signing of the Quitclaim and even before the show-cause notice was sent to her.

Gaite alleged that her termination was premeditated and that as early as 2010, she was already confronted about certain matters such as her out-of-town trips, entitlement to complimentary concert tickets, and her remarks about having too many board meetings.

Gaite further alleged that it is because FILSCAP and its counsel doubted the validity of their proposed grounds for termination that they instead negotiated with her for a separation package in exchange for her resignation. But belatedly, they reneged on their offer and simulated the charge of loss of confidence to justify her termination. According to Gaite, she did not misappropriate any fund nor is there proof that she utilized the same for her personal use.

As regards the alleged reallocation from the Special Accounts to the Operating Expenses, Gaite claimed that such was done in accordance with the company’s Distribution Rules which provide that the distributable revenue is calculated by subtracting from the company’s gross revenue, among others, all expenses arising from and incidental to the management and operation thereof. Also, she pointed out that, besides, said reallocation redounded to the benefit of the company.

LA Ruling:

The Labor Arbiter (LA) rendered a Decision ordering FILSCAP to pay Gaite P1,440,386.10 representing the amount stated in the Quitclaim declaring that there was already a perfected and binding contract between the parties when they negotiated and wrote the final draft of the Quitclaim.

NLRC Ruling:

The National Labor Relations Commission (NLRC) partially set aside the LA Decision and declared that Gaite was constructively dismissed, ordering FILSCAP to pay her backwages, separation pay, moral and exemplary damages and attorney’ fees.

According to the NLRC, the acts of FILSCAP prior to terminating Gaite’s services amounted to constructive dismissal. First, they sought the legal opinion of their counsel as to how they could terminate her employment. Apparently unconvinced with the soundness of their grounds, they negotiated with Gaite for a separation package.

But they reneged on their promise and instead belatedly came up with the charge of reallocation/misappropriation, which is a mere afterthought. To the NLRC, these acts constituted discrimination, insensibility, and disdain towards Gaite amounting to constructive dismissal.

CA Ruling:

The CA reversed and set aside the NLRC Decision.

It held that contrary to the NLRC’s findings, the acts of FILSCAP in seeking the opinion of its counsel, foregoing the signing of the Quitclaim, and conducting an administrative hearing cannot be considered as acts of discrimination, insensibility, and disdain for it was merely exercising prudence and due diligence in good faith to ensure that Gaite’s dismissal would be proper and based on valid grounds. Besides, it was stressed that the said was not perfected as the parties· did not sign the same.

As for her actual dismissal, the CA ruled that Gaite was validly dismissed for serious misconduct and loss of trust and confidence. This is because as provided by the company’s Distribution Rule, the Board has sole authority to allocate or appropriate FILSCAP’s revenues consisting of royalties and license fees. Thus, her act of transferring the staggering amount from the Special Accounts to augment the alleged Operating Expenses deficit without the consent of the Board is serious in that not only did she violate the rules, she depleted the special funds which FILSCAP merely held in trust for the rightful copyright owners, putting FILSCAP in a bad light. In fact, the appellate court noted that to correct Gaite’s anomaly, FILSCAP even had to take out a loan to cover the royalties due for distribution but were unavailable because of her reallocation.

The CA also ruled that contrary to Gaite’s claim, FILSCAP was able to sufficiently prove with convincing evidence the fact of the reallocation. Besides, her claim that there is no reallocation is inconsistent with her subsequent arguments that the reallocation was made pursuant to the Distribution Rules and that the same even redounded to the benefit of the company. The fact remains that Gaite’s culpable acts amounted to loss of trust and confidence justifying her dismissal because as General Manager of FILSCAP, she held a fiduciary position entrusted with the overall operation thereof.

The CA further rejected Gaite’s contention that the accounting report and email correspondence are inadmissible as they were never authenticated, verified or sworn to. First of all, according to the CA, technical of evidence are not binding in labor cases. Second of all, Gaite never questioned the authenticity/admissibility thereof before the labor tribunals. Thus, any objection thereto must be deemed waived.

Unfazed, Gaite filed the petition before the SC.

Issue/s:

Whether or not the Quitclaim agreed upon by the party but was not signed is a valid agreement where non-compliance by the employer constitutes constructive dismissa

Whether or not loss of trust and confidence arises when the fund was not lost but reallocated to operating expenses of the company

Whether or not there can be loss of trust and confidence involving misused of fund if there was no damage on the part of the company

Whether or not the transferring of funds from a Special Fund to cover the company’s Operating Expenses without the knowledge, consent or authorization of the Board although the managerial employee did not utilize said funds for personal use constituted loss of trust and confidence.

SC Ruling:

The Supreme Court (SC) denied the petition.

The SC held that the Notice of Termination shows that FILSCAP terminated Gaite’s employment due to the fact that her actuations constituted serious misconduct and caused loss of trust and confidence in her as General Manager of the company.

The SC found that Gaite’s actuations constituted serious misconduct. First, the seriousness of the same cannot be denied. Not only is the amount involved herein a staggering amount P17,720,455.77, the alleged reallocation violated an express provision of the company’s Distribution Rules and was accomplished without the knowledge, consent, or authorization of the Board. Second, Gaite committed said transfer in the performance of her duties as General Manager of FILSCAP who is responsible for the overall operations thereof, including the regular review and updating of its distribution guidelines to facilitate royalty distribution to FILSCAP members and foreign affiliates. Third, because of this grave infraction causing the depletion of the company’s Special Accounts held in trust for the rightful copyright owners, Gaite’s ability to duly perform and accomplish her duties and responsibilities as General Manager has been seriously put into question. It is clear, therefore, that Gaite’s acts amounted to serious misconduct warranting her dismissal.

As to the charge of loss of trust and confidence, the SC found that FILSCAP validly terminated Gaite’s employment on the ground of loss of trust and confidence. First, there is no doubt that she held a position of trust and confidence. According to the SC, the law contemplates two (2) classes of positions of trust. The first class consists of managerial employees. They are as those who are vested with the power or prerogative to lay down management policies and to hire, transfer, suspend, layoff, recall, discharge, assign or discipline employees or effectively recommend such managerial actions. The second class consists of cashiers, auditors, property custodians, etc. who, in the normal and routine exercise of their functions, regularly handle significant amounts of money or property.

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As General Manager of the company, Gaite clearly falls under the first class of employee for as earlier pointed out, she was responsible for the overall operations thereof, including the regular review and updating of its distribution guidelines to facilitate royalty distribution to FILSCAP members and foreign affiliates. Specifically, her duties include: (1) preparation of the annual and 3-5 year FILSCAP Programs and budgets, ensuring that the same are implemented effectively and judiciously; and (ii) regular reviews and updating of FILSCAP’s distribution guidelines to facilitate royalty distribution to FILSCAP members and foreign affiliates. Hence, the first requisite is present in this case.

Second, the act of transferring the aforementioned staggering amount from the Special Accounts to cover the company’s Operating Expenses, without the knowledge and consent of the Board of Directors, and in direct contravention of FILSCAP’s Distribution Rules is sufficient reason for the loss of trust and confidence in Gaite. It bears stressing that as managerial employee, Gaite could be terminated on the ground of loss of confidence by mere existence of a basis for believing that she had breached the trust of her employer, which in this case is FILSCAP. Proof beyond reasonable doubt is not required. It would already be sufficient that there is some basis for such loss of confidence, such as when the employer has reasonable ground to believe that the concerned employee is responsible for the purported misconduct and the nature of his participation therein. This distinguishes a managerial employee from a fiduciary rank-and-file where loss of trust and confidence, as ground for valid dismissal, requires proof of involvement in the alleged events in question, and that mere uncorroborated assertion and accusation by the employer will not be sufficient.

Related: Sample Notices to Explain, Hearing, or Termination for an offense related to Loss of Trust and Confidence

Gaite should not have used the funds from the Special Accounts to cover Operating Expenses because in the first place, the Operating Expenses should have already been deducted from the gross revenue before part of the distributable royalties may be set aside under the Special Accounts. In fact, it bears stressing that the Distribution Rules even provide that the Board has the sole authority to allocate or appropriate FILSCAP ‘s revenues consisting of royalties and license fees. It is therefore clear that not only did Gaite anchor her defense on an inapplicable and irrelevant provision of the company’s Distribution Rules, her commission of the subject reallocation goes against the express prohibitions provided thereunder.

That she did not use the funds for her personal gain and that the transfer thereof redounded to the benefit of the company is of no moment. To the SC, the mere fact that she authorized said transfer without the knowledge or consent of the Board and in direct contravention of the company’s Distribution Rules constitutes valid and legal ground sufficient enough to warrant her dismissal. Otherwise stated, regardless of whether FILSCAP has sufficiently proven actual damage to FILSCAP or that she personally benefited from her actuations, the mere existence of a basis for believing that she breached FILSCAP’s trust and confidence suffices as grounds for her dismissal.

Citing the case of Kasiguran vs. FJLSCAP, et al., the SC held further that it had already issued a Resolution where it ruled upon the illegal dismissal suit filed against FILSCAP by Mr. Genor Kasiguran, the Distribution Manager of FILSCAP with whom Gaite allegedly conspired in committing the same unauthorized act of reallocation charged herein. There, the Court upheld the validity of Kasiguran’ s dismissal on the grounds of serious misconduct and loss of trust and confidence holding that the damage to FILSCAP or whether or not FILSCAP was defrauded is not a necessary element and consideration in determining whether sufficient basis exists to justify the employee’s dismissal on grounds of serious misconduct or loss of trust. The employer need only to entertain the moral conviction or such reasonable grounds to believe, that the employee is responsible for the misconduct and the nature of the latter’s participation renders him unworthy of the trust and confidence demanded by the position; that the act resulting in the loss of trust or the misconduct is established by facts; and that the act or misconduct is willfully made, i.e., the employee voluntarily and willfully committed the act, although he may not have intended the wrongful consequence.

Prescinding from the foregoing, the SC held that it is evident from the facts of this case that Gaite was validly dismissed on the grounds of serious misconduct and loss of trust and confidence for her unauthorized reallocation of funds from FILSCAP’s Special Accounts to cover the deficit in its Operating Expense without the required knowledge, consent, or authorization of the company’s Board of Directors.

The SC emphasized that an employer has the right to exercise its management prerogative in dealing with its company’s affairs including its right to dismiss its erring employees. The Court recognized the right of the employer to regulate all aspects of employment, such as the freedom to prescribe work assignments, working methods, processes to be followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and recall of workers. In fact, it is a general principle of labor law to discourage interference with an employer’s judgment in the conduct of his business.

Even as the law is solicitous of the welfare of the employees, it also recognizes employer’s exercise of management prerogatives. Thus, for as long as the company’s exercise of judgment is in good faith to advance its interest and not for the purpose of defeating or circumventing the rights of employees under the laws or valid agreements, such exercise will be upheld.