The Supreme Court has affirmed that managerial employees can be dismissed for loss of trust and confidence if there is a reasonable basis to believe they breached the trust reposed in them by their employer. In this case, the Court found that the Project Director’s failures in managing critical projects sufficiently eroded the employer’s confidence, justifying termination. While the dismissal was for a just cause, the employer failed to comply with procedural due process, entitling the employee to nominal damages. This ruling underscores the high standard of trust expected from managerial employees and the importance of due process in termination proceedings.

When Project Oversight Falters: Examining Trust and Termination at SMDC

This case revolves around the dismissal of Teodore Gilbert Ang (respondent) from SM Development Corporation (SMDC), where he served as a Project Director. The central legal question is whether SMDC had just cause to terminate Ang’s employment based on loss of trust and confidence, and whether the company followed the proper procedure in doing so. The factual backdrop involves allegations of negligence and mismanagement on Ang’s part, leading to financial losses and potential legal liabilities for SMDC. These allegations prompted SMDC to issue a show-cause notice, followed by Ang’s eventual termination.

The Labor Arbiter (LA) and the National Labor Relations Commission (NLRC) sided with SMDC, finding just cause for dismissal. However, the Court of Appeals (CA) reversed these decisions, ruling that Ang was illegally dismissed. The Supreme Court, in this instance, took a different view, siding with the labor tribunals. The Supreme Court emphasized that it could review factual issues in labor cases where the CA’s findings contradict those of labor tribunals, citing Stradcom Corporation v. Orpilla, G.R. No. 206800, July 2, 2018. This underscores the Court’s power to delve into the factual details when lower courts disagree, ensuring a just outcome.

The Court anchored its decision on the principle that employers should not be forced to retain employees who act against their interests, especially in managerial roles. The case explicitly references Article 297(c) of the Labor Code, which allows termination for:

“Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.”

This provision highlights the importance of trust in the employer-employee relationship, especially when an employee holds a position of significant responsibility. The Court outlined two conditions for a valid dismissal based on loss of trust and confidence: first, the employee must hold a position of trust, and second, there must be an act justifying the loss of trust. In this case, there was no dispute that as Project Director, the respondent occupied a position of trust, with responsibilities encompassing crucial aspects of project management, from business planning to legal compliance.

The level of proof required to establish loss of trust and confidence differs for managerial and rank-and-file employees. The Supreme Court made this distinction clear, quoting Casco v. National Labor Relations Commission, G.R. No. 200571, February 19, 2018:

“In terminating managerial employees based on loss of trust and confidence, proof beyond reasonable doubt is not required, but the mere existence of a basis for believing that such employee has breached the trust of his employer suffices. x x x As firmly entrenched in our jurisprudence, loss of trust and confidence, as a just cause for termination of employment, is premised on the fact that an employee concerned holds a position where greater trust is placed by management and from whom greater fidelity to duty is correspondingly expected. The betrayal of this trust is the essence of the offense for which an employee is penalized.”

This highlights the relatively lower threshold for dismissing managerial employees based on loss of trust, requiring only a reasonable basis for believing the trust has been breached. The court emphasized that the Project Director’s role demanded a high degree of fidelity and that the employer had a valid reason to lose confidence in the employee given his failure to properly manage critical projects. The Court cited Punongbayan and Araullo v. Lepon, 772 Phil. 311 (2015), reiterating that employers cannot be compelled to continue employing individuals whose actions are detrimental to the company’s interests.

However, the Court also found that SMDC failed to comply with procedural due process in dismissing Ang. Specifically, the records lacked evidence of a hearing or conference on May 7 and 9, 2012, as alleged by SMDC. While Ang was given a chance to explain his side in writing, he was not given the opportunity to confront the witnesses against him. The court then applied prevailing jurisprudence, stating that non-compliance with procedural due process does not render the dismissal illegal if there is just cause, but the employer must indemnify the employee with nominal damages. The amount of P30,000.00 was deemed appropriate as nominal damages, citing Libcap Marketing Corporation v. Baquial, 737 Phil. 349 (2014).

It’s also important to recognize that an employee’s previous clean record does not excuse a later discovery of misconduct. The Court noted that a clean record is not a shield against the consequences of a misdeed, citing Alaska Milk Corporation v. Ponce, 814 Phil. 975 (2017). The ruling confirms that an employer can still take action based on newly discovered evidence of misconduct, even if the employee has a history of good performance. The employee must always perform his duties as required and as expected.

FAQs

What was the key issue in this case?	The key issue was whether SMDC had a just cause to dismiss Teodore Gilbert Ang based on loss of trust and confidence, and whether they followed the proper procedure in doing so. The Supreme Court ultimately ruled that there was just cause, but procedural due process was not followed.
What is the basis for dismissing a managerial employee for loss of trust and confidence?	A managerial employee can be dismissed if there is a reasonable basis to believe they breached the trust reposed in them by their employer. Unlike rank-and-file employees, proof beyond reasonable doubt is not required; the mere existence of a basis for believing the employee breached trust suffices.
What are the two conditions that must be met for a valid dismissal based on loss of trust and confidence?	The two conditions are: (1) the employee must hold a position of trust and confidence, and (2) there must be an act that would justify the loss of trust and confidence. These conditions must be present to legally terminate an employee on these grounds.
What is procedural due process in the context of employee dismissal?	Procedural due process requires that an employee be given notice of the charges against them and an opportunity to be heard and defend themselves before being dismissed. This typically involves a hearing or conference where the employee can present their side of the story.
What happens if an employer dismisses an employee for just cause but fails to follow procedural due process?	In such cases, the dismissal is upheld as valid, but the employer must indemnify the employee by paying nominal damages. This compensates the employee for the employer’s failure to follow the correct procedure, even if the dismissal itself was justified.
Can an employee’s previous good record protect them from dismissal for a later act of misconduct?	No, an employee’s previous good record does not excuse a later discovery of misconduct. The employer can still take action based on the new evidence, even if the employee has a history of good performance.
What was the role of Teodore Gilbert Ang at SMDC?	Teodore Gilbert Ang was a Project Director at SMDC, responsible for overseeing various aspects of project management, including business planning, sales, marketing, and legal compliance. This position held significant responsibility and required the full trust and confidence of his employer.
What specific actions led to SMDC losing trust and confidence in Ang?	SMDC lost trust and confidence in Ang due to reports of incidents and negligent acts directly involving him as Project Director. These actions resulted in pecuniary loss to SMDC and exposed the corporation and its officers to possible legal sanctions.

This case provides valuable insights into the termination of managerial employees and the importance of trust in the workplace. While employers have the right to protect their interests by dismissing employees who breach their trust, they must also adhere to procedural due process to ensure fairness. Failure to do so can result in liability for nominal damages, even if the dismissal itself was justified.

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: SM Development Corporation vs. Teodore Gilbert Ang, G.R. No. 220434, July 22, 2019