The Supreme Court ruled that an employer can dismiss an employee for breach of trust and confidence even without direct evidence of wrongdoing if their negligence significantly contributes to the loss of company property. This decision emphasizes the high standard of care expected from employees in positions of trust, particularly those responsible for managing inventory and ensuring the security of company assets. It serves as a reminder to employees that failure to properly discharge their duties, leading to losses, can have severe consequences, including termination.

Pilferage at PACI: Can Negligence Lead to Dismissal for Breach of Trust?

Philippine Auto Components, Inc. (PACI) faced a problem: missing automotive parts. An anonymous tip led to the discovery of a scheme involving employees stealing and selling company products. The investigation pointed to Ronnie Jumadla, Roy Ariz, and Roy Conejos, who held positions of responsibility within PACI’s inventory control and distribution departments. While direct evidence linking them to the theft was lacking, PACI argued that their negligence and failure to properly oversee inventory controls facilitated the pilferage. The central legal question was whether this negligence constituted a sufficient breach of trust to justify their dismissal, even without proof of direct involvement in the theft.

The case reached the Supreme Court after conflicting decisions from the Labor Arbiter (LA), the National Labor Relations Commission (NLRC), and the Court of Appeals (CA). The LA initially ruled that the employees were illegally dismissed, a decision affirmed by the NLRC. However, the CA modified the ruling, ordering the payment of separation pay instead of reinstatement due to the strained relations. PACI, dissatisfied with this outcome, elevated the case to the Supreme Court, arguing that the evidence, though circumstantial, warranted dismissal based on breach of trust, serious misconduct, and willful disobedience of company rules. The Supreme Court agreed with PACI, ultimately reversing the CA’s decision.

At the heart of the Supreme Court’s decision lies the concept of loss of trust and confidence as a just cause for termination under the Labor Code. Article 297(c) of the Labor Code allows an employer to terminate employment for “fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.” The Court emphasized that this ground is particularly relevant when employees hold positions of trust, requiring a higher degree of fidelity to their duties. As the Court stated in Mabeza v. NLRC:

Loss of confidence as a just cause for dismissal was never intended to provide employers with a blank check for terminating their employees. Such a vogue, all-encompassing pretext as loss of confidence, if unqualifiedly given the seal of approval by this Court, could readily reduce to barren form the words of the constitutional guarantee of security of ‘tenure. Having this in mind, loss of confidence should ideally apply only to cases involving employees occupying positions of trust and confidence or to those situations where the employee is routinely charged with the care and custody of the employer’s money or, property.

To validly dismiss an employee for loss of trust and confidence, the Court in Wesleyan University Philippines v. Reyes, outlined two key requisites: first, the employee must hold a position of trust and confidence, either as a managerial employee or a fiduciary rank-and-file employee; second, there must be an act that justifies the loss of trust and confidence, based on clearly established facts. In this case, the Supreme Court determined that Jumadla, Ariz, and Conejos met the first requisite. They were Inventory Control Leaders and a Senior Inventory Control Associate, responsible for ensuring the accuracy and security of PACI’s inventory. These positions inherently require a high degree of trust, as they directly impact the safeguarding of company assets.

Regarding the second requisite, the Court found that the loss of a considerable amount of automotive products under the respondents’ watch, coupled with their failure to provide a satisfactory explanation for the missing inventory, constituted a breach of trust. While the Court acknowledged that there was no direct evidence proving the respondents’ direct involvement in the theft, their negligence in the performance of their duties facilitated the unauthorized removal of products from PACI’s warehouse. This failure to adequately safeguard company assets, the Court reasoned, was a sufficient basis for the employer to lose trust and confidence in their employees.

The Court also addressed the issue of procedural due process, confirming that PACI had complied with the requirements of providing the employees with two written notices: one specifying the grounds for termination and giving them an opportunity to explain their side, and another indicating that, after due consideration, grounds were established to justify dismissal. The respondents were given show cause notices, administrative hearings were conducted, and individual notices of the decision were issued. Thus, the procedural requirements for a valid dismissal were met.

In summary, the Supreme Court’s decision highlights the importance of trust and diligence in employment, particularly in positions involving the management and control of company assets. It underscores that employers have the right to terminate employees whose negligence or failure to adequately perform their duties leads to a loss of confidence, even without direct evidence of intentional wrongdoing. This case provides a framework for employers to assess whether an employee’s actions, or lack thereof, constitute a sufficient breach of trust to justify dismissal under the Labor Code.

FAQs

What was the key issue in this case?	The key issue was whether an employer could validly dismiss employees for breach of trust and confidence when there was no direct evidence of their involvement in theft, but their negligence contributed to the loss of company property.
What is “loss of trust and confidence” as a ground for dismissal?	Loss of trust and confidence is a just cause for termination when an employee holds a position of trust and commits an act that justifies the employer’s loss of confidence. This typically applies to managerial or fiduciary employees responsible for handling significant company assets.
What are the requirements for a valid dismissal based on loss of trust and confidence?	The employee must hold a position of trust, and there must be an act that justifies the loss of trust, based on clearly established facts. This act usually involves a willful breach of trust or a failure to adequately safeguard company assets.
Did the Supreme Court find the employees directly involved in the theft?	No, the Supreme Court acknowledged that there was no direct evidence proving the respondents’ direct involvement in the theft of PACI’s products.
Why were the employees dismissed if they weren’t directly involved in the theft?	The employees were dismissed because their negligence in performing their duties as inventory control leaders and associate facilitated the unauthorized removal of products from PACI’s warehouse, leading to a breach of trust.
What is procedural due process in the context of employee dismissal?	Procedural due process requires that an employer provide an employee with two written notices before dismissal. The first notice specifies the grounds for termination, and the second informs the employee of the decision to dismiss after considering their explanation.
Did the employer comply with procedural due process in this case?	Yes, the Supreme Court found that PACI complied with the requirements of procedural due process by issuing show cause notices, conducting administrative hearings, and providing individual notices of the decision to dismiss.
What is the practical implication of this ruling for employers?	This ruling reinforces the right of employers to expect a high standard of care from employees in positions of trust and to dismiss those whose negligence leads to a loss of company assets.
What is the practical implication of this ruling for employees?	This ruling emphasizes the importance of diligently performing their duties, especially those involving the management and control of company assets, as negligence can lead to dismissal.

This case underscores the delicate balance between an employee’s right to security of tenure and an employer’s right to protect its business interests. While employers cannot use loss of confidence as a blanket justification for dismissal, they are entitled to expect a reasonable level of competence and diligence from their employees, particularly those in positions of trust. Employees, in turn, must understand the responsibilities associated with their roles and the potential consequences of failing to meet those responsibilities.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Philippine Auto Components, Inc. vs. Ronnie B. Jumadla, G.R. No. 218980, November 28, 2016