REDUNDANCY RESULTING IN TERMINATION OF ALL EMPLOYEES OF THE ABOLISHED POSITION DOES NOT REQUIRE THE USE OF CRITERIA

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise. (Page 221, Guide to Valid Dismissal of Employees, 2^nd Edition, by Atty. Elvin B. Villanueva, citing Coats Manila Bay, Inc. vs. Ortega, supra, citing Wiltshire File Co., Inc., vs. NLRC, G.R. No. 82249, 7 February 1991, 193 SCRA 665)

Redundancy which involves termination of all employees in the abolished position does not require use of criteria. Thus, the Supreme Court held as follows:

Coca-Cola Femsa Philippines vs. Macapagal
G.R. No. 232669, July 29, 2019

Redundancy; Two types of redundancy; Termination of all employees in the abolished position; Termination of all employees in the abolished position does not require use of criteria; Termination of some employees in the affected position thus, requiring use of criteria; Hiring of service contractor after effecting redundancy; Implementation of the redundancy program is not destroyed by the employer’s act of availing the services of an independent contractor to replace the services of the terminated employees

Facts:

The thirteen (13) Macapagal, et al. (Macapagal, et al.) were employed by petitioner Coca-Cola Femsa Philippines, Inc. (Company) at its manufacturing plant in San Fernando City, Pampanga, as part of the Product Availability Group (PAG).

In January 2011, the Company announced its plan to abolish PAG, together with all of its warehouses and the positions under it, including those held by Macapagal, et al., and   outsource its remaining functions to The Redsystem Company, Inc. (TRCI). Thereafter, Macapagal, et al. received letters terminating their employment due to redundancy. Thus, Macapagal, et al. filed a complaint for illegal dismissal, arguing that the redundancy program was done in bad faith to undermine their security of tenure. They also alleged that TRCI is not an independent contractor as it is a wholly-owned subsidiary of the Company.

For its part, the Company denied Macapagal, et al.’s claims. It averred that it is engaged in the business of manufacturing and selling carbonated drinks and other beverage items nationwide while PAG’s work involved coordination with the external distribution channels. To improve operation efficiency and effectiveness, the Company resolved to outsource all of its distribution   and coordination efforts under PAG to an independent contractor, TRCI.

Notices of the redundancy program were given to the Macapagal, et al. on January 31, 2011 as well as to the DOLE at least thirty days prior to the effective date of separation. The Company added that it also gave more than the required separation pay and other benefits to Macapagal, et al., who in turn voluntarily executed their respective notarized Deeds of Receipt, Waiver, and Quitclaim.

Thus, the Company was surprised to learn that Macapagal, et al. filed the illegal dismissal complaint almost two years after their separation. It stressed that what was declared redundant was its entire logistics operations nationwide, and in doing so, all positions therein, without exception, were declared redundant.

LA Ruling:

The LA found that the redundancy program was made in bad faith and held that Macapagal, et al. were illegally dismissed.

Accordingly, it ordered the Company to reinstate Macapagal, et al. to their former positions without loss of seniority rights and other privileges, with full backwages, and to pay wage and benefits differentials, as well as attorney’s fees.

Dissatisfied, the Company filed an appeal before the NLRC.

NLRC Ruling:

The NLRC reversed the LA’s ruling.

The NLRC held that the redundancy program was done in good faith and was aimed at achieving a more cost-effective operating framework. Thus, it upheld the Company’s management decision to abolish the PAG, as well as the validity of the resulting dismissals from employment.

Macapagal, et al. moved for reconsideration but the motion was denied. Hence, they filed a petition for certiorari before the Court of Appeals (CA).

CA Ruling:

The CA reversed the NLRC’s ruling and reinstated the LA’s Decision.

The CA explained that while the Company substantiated its need to streamline its operations, it failed to provide fair and reasonable criteria in ascertaining which positions to abolish. Thus, the Company failed to support its allegations of redundancy. Furthermore, the CA refused to uphold the validity of Macapagal, et al.’ quitclaims, noting that Macapagal, et al. and the Company did not stand on the same footing.

The Company filed a motion for reconsideration, which was, however, denied in a Resolution; hence, the petition before the SC.

Issue/s:

Whether or not in a redundancy involving termination of employees of abolished position the criteria should be used

Whether or not termination for simplification of the distribution systems can be valid

Whether or not the validity of the termination due to redundancy is negated by employer’s act of availing the services of an independent contractor to replace the services of the terminated employees

SC Ruling:

In San Fernando Coca-Cola Rank-and-File Union vs. Coca-Cola Bottlers Philippines, Inc. (San Fernando), wherein the same company involved in this case terminated the employment of twenty seven employees due to the phasing out of two selling and distribution systems, the Court held that the redundancy program was valid as it was based on a careful study on how to simplify the multi-layered distribution system and make the business operations more cost effective.

Since the Market Execution Partners or dealership system incurs the lowest cost-to-serve, the other distribution systems had to be phased out, resulting in the termination of the employees, as what happened in this case. The Court ruled that the phasing out of distribution systems was an exercise of management prerogative and there was no proof that it was exercised in a malicious or arbitrary manner.

Similarly, in this case, the Court finds that the termination of Macapagal, et al. was due to the simplification of the distribution systems in the Company, considering that PAG’s work primarily involved coordination for the Company’s finished products to reach the distribution channels for delivery to the customers.

Since the Company’s operating income still posted negative figures despite improvement in sales volumes in 2007, management further reviewed the Company’s distribution channels to identify areas where cost may be reduced, as well as opportunities to enhance operational efficiency. Based on this study, the Company resolved to abolish all positions under PAG, including those which were previously held by Macapagal, et al.

Since all PAG positions were abolished, the CA erred in ruling that the Company still needed to choose who among the employees should be dismissed, to which the fair and reasonable criteria requisite is pertinent.

Instructive is the case of Asian Alcohol Corporation v. NLRC (Asian Alcohol), which presented two types of redundancy. In the first scenario, the services of all the water pump tenders working in the leased wells had to be terminated because the lease contract over the wells had expired.

In the second scenario, the employer found that one (1) of three (3) briquetting helper position was redundant, and accordingly, chose which employee should be separated from service based on age and the physical strength that comes with it. In the same way, the employer found it more cost effective to maintain nine (9) instead of ten (10) mechanics in the machine shop, and thus, removed the least efficient among them. In all these instances, the Court upheld the validity of the employees’ dismissal from service.

The first scenario in Asian Alcohol is similar to this case wherein all positions for a particular line of service had been abolished. Needless to say, the services of all employees under the PAG had to be terminated. Hence, the fair and reasonable criteria to determine which employees should be dismissed from service, no longer finds application.

It bears stressing that Macapagal, et al. merely raised a “suspicion” without proffering any proof that only union officers were not retained for redeployment. Certainly, as the Company has argued, the abolition of its entire logistics operation affecting around two hundred (200) employees nationwide cannot be construed as mere ruse to terminate thirteen (13) Macapagal, et al. The Company’s good faith is further shown by its act of giving separation packages more than what is required by law.

The Court in San Fernando, citing Asian Alcohol, likewise held that the implementation of the redundancy program is not destroyed by the employer’s act of availing the services of an independent contractor to replace the services of the terminated employees, as when the Company availed of TRCI’s services. All these considered, the Company has sufficiently shown that it was in good faith when it terminated Macapagal, et al.’s services on the ground of redundancy.