Constructive dismissal occurs when there is cessation of work because continued employment is rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employee leaving the latter with no other option but to quit. (Page 103, Guide to Valid Dismissal of Employees, 2nd Edition, citing Tan Brothers Corporation of Basilan City vs. Escudero G.R. No. 188711, July 3, 2013)

Thus, the SC held in the following case:

Isabela-I Electric Coop., Inc., vs. Del Rosario
G.R. No. 226369, July 17, 2019

Constructive dismissal; Demotion in rank; Diminution in pay;


Petitioner Isabela-I Electric Cooperative, Inc. (Isabela Electric Coop) hired Respondent Vicente B. Del Rosario, Jr. (Del Rosario) as Financial Assistant. The latter quickly rose from the ranks. After just three (3) months he got promoted as Acting Management Internal Auditor and thereafter, as Management Internal Auditor at Isabela Electric Coop’s main office.

As Management Internal Auditor, Del Rosario was receiving a basic monthly salary of P30,979.00 exclusive of representation allowance and other emoluments and benefits. Isabela Electric Coop never raised any issue regarding his performance and capacity to lead his department.

Subsequently, Isabela Electric Coop approved a reorganization plan declaring all positions in the company vacant. Del Rosario, along with other employees signed a Manifesto to oppose the reorganization. Despite this opposition, Isabela Electric Coop proceeded to implement the reorganization. Additionally, Isabela Electric Coop informed its employees in writing, that they were on a “hold-over capacity.”

Together with other employees, Del Rosario was made to fill out a prescribed application form. There, Del Rosario listed “Internal Auditor Manager A,” his current position, as his first preference, and “Finance Services Department Manager A” as his second.

While on vacation leave, Del Rosario received two (2) letters from Isabela Electric Coop. The first referred to his appointment as probationary Area Operations Manager. The second contained four (4) office memoranda which (a) indicated his area of assignment; (b) ordered him to cease acting as Isabela Electric Coop’s management internal auditor; (c) directed him to turn over his current post and pertinent documents to his successor; and (d) appointed his subordinate Arlene B. Boy as officer-in-charge of the Auditing Department.

Although Del Rosario had issues about this new appointment, including the fact that his successor was not even a Certified Public Accountant (CPA) as he was the only CPA among Isabela Electric Coop’s employees, he begrudgingly accepted his appointment. Three (3) months later, Del Rosario sent a letter to Isabela Electric Coop’s general manager Virgilio L. Montano, voicing out his concern that the new position given him was a demotion. In the same letter he requested to be reinstated to his former position, especially since he was the only CPA among Isabela Electric Coop’s employees. Isabela Electric Coop, however, did not act on his letter.

Del Rosario filed the complaint below for illegal dismissal and damages. He claimed he was unlawfully demoted and was therefore constructively dismissed.

LA Ruling:

The Labor Arbiter (LA) dismissed the complaint.

The LA found no concrete evidence on record showing that Isabela Electric Coop undertook the process of reorganization for purposes other than its declared objective: to save cost and maximize productivity and in compliance with the NBA policy as mandated by RA 9136.

NLRC Ruling:

On appeal, the NLRC reversed through its Decision.

It held that Isabela Electric Coop did not present any justifiable reason for not reappointing Del Rosario to his former position, nor did it deny that Del Rosario was the only licensed CPA among its employees. Too, the NLRC noted that Del Rosario’s new position carried a lower salary grade than that attached to his former position.

It denied Isabela Electric Coop’s motion for reconsideration.

CA Ruling:

The CA affirmed the Decision of the NLRC but deleted the award of salary differential.

The CA also denied Isabela Electric Coop’s motion for reconsideration.


Whether or not an employee who has been an internal audit manager of 15 years and the only CPA in the company is considered constructively dismissed if replaced by one who is not a CPA and with lower rank and salary

Whether or not there is demotion in rank when the original position of management auditor encompasses a more vast expanse, entails more responsibilities and requires a certain qualification

Whether or not there was demotion in rank when the new position still bears the appellation “manager” but the responsibilities are limited to a specific area, in contrast to his previous position where the coverage of his responsibilities involves the entire financial transaction

Whether or not there was demotion when the position the employee was appointed to does not match his qualifications as a licensed CPA

Whether or not the totality of circumstances rule applies in this case

SC Ruling:

The SC denied the petition and affirmed with modification the Decision of the CA.

The SC held that contrary to Isabela Electric Coop’s claim, although Del Rosario’s present position bears the appellation “manager,” the responsibilities he used to discharge as manager in his former position had been significantly reduced.

The position of Management Auditor encompasses a more vast expanse in the Cooperative than the position of Area Manager/Head. Thus, the former position entails more responsibilities and requires a certain qualification that must be complied with as compared to the latter position. Based on the position description an Internal Audit Manager must be a Certified Public Accountant (CPA) with at least 5 years experience in auditing procedures and a holder of a master’s degree in Management or Business Administration.

On the other hand, such requirements are not mentioned in the position of Area Manager as seen in private Del Rosario’s appointment. Thus, a non-CPA or a non-holder of a master’s degree   can hold the position of Area Manager. Moreover, the Management Auditor covers the different financial aspects of the Cooperative while the Area Manager position given to private Del Rosario is limited to collection and operation. There is a palpable diminution of responsibilities.

Without question, as an Area Head his responsibilities are limited to a specific area, in contrast to his previous position where the coverage of his responsibilities involves the entire financial transaction of the Cooperative. Interestingly also, the position of Area Head, where he was appointed, does not match his qualification(s) as a licensed CPA since the responsibilities attached to it consist of supervision and implementation of activities on house connection, collection, disconnection, apprehension, maintenance and operations and consumer services in his area. Visibly, the Complainant was not only demoted but placed in a position where he cannot advance and exercise his full potential and qualification.

Although Del Rosario retained the appellation “manager,” his new rank was in fact a demotion from his former position. More, Isabela Electric Coop has consistently admitted that Del Rosario is the only licensed CPA among its employees. In addition, Del Rosario holds a Master’s Degree in Business Administration. Isabela Electric Coop also concedes that Del Rosario has been working for the company as auditor continuously for fifteen (15) years before the reorganization. Del Rosario has all the qualifications to continue holding the position of Management Internal Auditor, which after the reorganization, was not abolished. For no apparent reason, Isabela Electric Coop opted to appoint, even in an acting capacity, a non-CPA as Management Internal Auditor.

In fine, Isabela Electric Coop arbitrarily, sans any rhyme or reason peremptorily removed Del Rosario from his post as Management Internal Auditor in the guise of a supposed reorganization and exercise of management prerogative.

Isabela Electric Coop next claims that the “totality of circumstances rule” as enunciated in Tinio v. Court of Appeals shows that Del Rosario did not actually suffer diminution. Isabela Electric Coop’s argument fails.

In Tinio, the Court sustained the management’s decision to transfer Tinio to another position and area of assignment because the transfer could actually be considered a promotion. For Tinio’s transfer from the Cebu office to the Makati office entailed greater responsibilities because it would involve corporate accounts of top establishments in Makati which are significantly greater in value than the individual accounts in Visayas and Mindanao. The Court held that the transfer was even beneficial and advantageous since Tinio was being assigned the corporate accounts of the choice clients of SMART. More, the position was of the same level as Senior Manager since the skills and competencies required involved handling the accounts of top corporate clients being among the largest corporations in the country.

The situation in Tinio is not the case here. As thoroughly discussed by the NLRC and the Court of Appeals, Del Rosario’s new position entailed less responsibilities and less qualifications than those pertaining to his former position. In essence, the totality of the circumstances actually obtaining here leads to no other conclusion than that Del Rosario was in fact demoted.

Records show that Management Internal Auditor carries Salary Rank 20, while the position of Area Operations Head, Salary Rank 19. The evidence, however, would suggest that after the reorganization, there was restructuring of the salary ranks. Salary Rank 20 is paid P33,038.53, while the compensation for Salary Rank 19 is fixed at P30,963.95. Hence, had Isabela Electric Coop been retained as Management Internal Auditor, he would already have received P33,038.53, and not just P30,963.95.

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