The High Bar for Loss of Trust and Confidence Dismissals in the Philippines

TLDR: Philippine law protects employees from arbitrary dismissal. While loss of trust and confidence is a valid ground for termination, employers must present concrete, substantial evidence of work-related misconduct to justify it. Mere suspicion or unsubstantiated claims are insufficient, as highlighted in the Jardine Davies case, where the Supreme Court upheld the NLRC’s decision that the dismissal was illegal due to lack of solid proof.

G.R. No. 76272, July 28, 1999

INTRODUCTION

In the Philippines, job security is a constitutionally protected right, making it challenging for employers to terminate employees. One of the recognized just causes for termination is ‘loss of trust and confidence.’ However, this ground is not a blanket license for employers to dismiss employees at will. It demands a high burden of proof, requiring employers to demonstrate a legitimate and substantial reason for losing faith in their employee. The Supreme Court case of Jardine Davies, Inc. vs. National Labor Relations Commission provides a crucial illustration of how Philippine labor law carefully scrutinizes such dismissals, emphasizing the need for concrete evidence and fair process to protect employees from wrongful termination. This case underscores that employers cannot simply claim ‘loss of trust’; they must substantiate it with solid, work-related facts.

LEGAL CONTEXT: Understanding ‘Loss of Trust and Confidence’ as Just Cause

The legal basis for terminating an employee based on loss of trust and confidence is found in Article 297 (formerly Article 282) of the Labor Code of the Philippines, which states:

“ART. 297. Termination by employer. – An employer may terminate an employment for any of the following causes:
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.”

This provision acknowledges that in certain roles, particularly those involving handling sensitive information, finances, or critical aspects of the business, a high degree of trust is essential. However, Philippine jurisprudence has consistently held that loss of trust and confidence, as a just cause for dismissal, must meet specific criteria to prevent abuse by employers. It is not enough for an employer to simply state they have lost trust. The Supreme Court has clarified that:

1. The employee must hold a position of trust: This typically applies to managerial employees or those handling significant company assets or confidential information.
2. The act causing loss of trust must be work-related: The employee’s misconduct must directly relate to their duties and responsibilities within the company. Personal matters generally do not qualify.
3. There must be substantial evidence, not proof beyond reasonable doubt: While a criminal conviction is not required, employers must present substantial evidence – more than a mere allegation or suspicion – to support their claim of breach of trust. This evidence must be credible and lead a reasonable person to believe the employee is responsible for the alleged misconduct.

Crucially, the burden of proof lies with the employer to demonstrate that the dismissal was for a just cause. Failure to meet this burden can lead to a finding of illegal dismissal, as seen in the Jardine Davies case.

CASE BREAKDOWN: Jardine Davies, Inc. vs. NLRC

The Jardine Davies case revolves around Virgilio Reyes, a sales representative for Jardine Davies, Inc., a distributor of “Union 76” lubricating oil. Jardine Davies suspected that counterfeit “Union 76” oil was being manufactured and distributed. They hired a private investigation agency which reported that Reyes was involved in this illegal activity. Based on this report, Jardine Davies obtained a search warrant for an apartment complex allegedly occupied by Reyes. The search yielded items suspected to be fake “Union 76” oil.

Reyes was subsequently criminally charged with unfair competition and administratively charged with serious misconduct. He was placed on indefinite leave, which led to his termination. However, a twist occurred when Reyes’s brother, Donato Reyes, successfully petitioned for the release of the seized items. Donato proved to the court that he, not Virgilio, was the apartment lessee and the owner of the seized goods, operating a legitimate business dealing in oil and lubricant products under the name Lubrix Conglomerate. He even presented receipts showing he purchased genuine Unoco products for repackaging.

Virgilio Reyes then filed a complaint for illegal dismissal. Initially, the Labor Arbiter ruled in favor of Jardine Davies, believing Reyes was involved in illegal activities based on the initial investigation. However, the National Labor Relations Commission (NLRC) reversed this decision, finding no “shadow of an act amounting to serious misconduct, fraud or breach of trust” on Reyes’s part. The NLRC ordered Jardine Davies to reinstate Reyes with full backwages.

Jardine Davies elevated the case to the Supreme Court, arguing that the NLRC committed grave abuse of discretion. The company contended that the NLRC wrongly reversed the Labor Arbiter’s decision and that there was sufficient evidence to justify Reyes’s dismissal based on loss of trust and confidence. Jardine Davies insisted that the surveillance report and the seized items were proof of Reyes’s misconduct.

The Supreme Court, however, sided with the NLRC and upheld its decision. Justice Quisumbing, writing for the Second Division, emphasized the limited scope of judicial review in NLRC decisions, focusing on grave abuse of discretion rather than re-evaluating evidence. The Court stated:

“Resort to judicial review of the decisions of the National Labor Relations Commission by way of a special civil action for certiorari under Rule 65 of the Rules of Court is confined only to issues of want or excess of jurisdiction and grave abuse of discretion on the part of the labor tribunal. It does not include an inquiry as to the correctness of the evaluation of evidence which was the basis of the labor agency in reaching its conclusion.”

The Supreme Court found that the NLRC did not gravely abuse its discretion. The Court agreed with the NLRC’s assessment that the surveillance report was unreliable and lacked corroborating evidence. Furthermore, Jardine Davies failed to prove that the seized products were actually counterfeit. The Court highlighted the fact that Jardine Davies did not even conduct laboratory tests on the seized items to verify their authenticity, weakening their claim of illegal activity.

The Court also noted the court order releasing the seized items to Donato Reyes, which further undermined Jardine Davies’s case against Virgilio. The court’s acceptance of Donato’s explanation about his legitimate business and the purchase of genuine products cast doubt on the allegations against Virgilio.

Ultimately, the Supreme Court concluded that Jardine Davies failed to present substantial evidence to justify the dismissal based on loss of trust and confidence. The Court affirmed the NLRC’s decision, albeit with a modification regarding backwages and separation pay, ordering Jardine Davies to pay Reyes backwages for three years and separation pay in lieu of reinstatement due to the strained relationship and the length of time elapsed.

PRACTICAL IMPLICATIONS: Lessons for Employers and Employees

The Jardine Davies case provides critical lessons for both employers and employees in the Philippines, particularly concerning terminations based on loss of trust and confidence.

For Employers:

• Conduct Thorough Investigations: Before terminating an employee for loss of trust, conduct a comprehensive and impartial investigation. Do not rely solely on hearsay or unsubstantiated reports. Gather concrete evidence, such as documents, eyewitness testimonies, or expert opinions. In Jardine Davies, the lack of laboratory testing on the seized products was a significant weakness in the employer’s case.
• Ensure Evidence is Substantial and Work-Related: The evidence must be directly related to the employee’s work responsibilities and must be significant enough to genuinely erode trust. Speculation or minor infractions are insufficient.
• Follow Due Process: Even when there is a valid cause for termination, employers must still adhere to procedural due process, which includes issuing a notice of charges, giving the employee an opportunity to be heard, and conducting a fair hearing.
• Document Everything: Maintain detailed records of the investigation, the evidence gathered, and the steps taken in the termination process. Proper documentation is crucial in defending against illegal dismissal claims.

For Employees:

• Know Your Rights: Understand your rights as an employee, particularly regarding job security and due process. Familiarize yourself with the grounds for valid termination and the procedures employers must follow.
• Maintain Professional Conduct: Uphold ethical and professional standards in your workplace to minimize the risk of disciplinary actions or loss of trust.
• Document Your Work: Keep records of your work performance, accomplishments, and any communications relevant to your employment. This can be valuable if you face unfair accusations or termination.
• Seek Legal Advice: If you believe you have been unjustly dismissed, consult with a labor lawyer immediately to assess your options and protect your rights.

Key Lessons from Jardine Davies vs. NLRC

• Substantial Evidence is Key: Employers must present concrete, substantial evidence to prove loss of trust and confidence. Mere suspicion or weak evidence will not suffice.
• Work-Related Misconduct Required: The act causing loss of trust must be directly related to the employee’s job responsibilities.
• NLRC’s Role in Review: The NLRC plays a crucial role in reviewing labor arbiter decisions and ensuring fairness in dismissal cases.
• Employee Protection: Philippine labor law strongly protects employees from arbitrary dismissal, requiring employers to meet a high legal standard for terminations based on loss of trust and confidence.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1: What is ‘loss of trust and confidence’ as a ground for dismissal?

A: It is a just cause for termination in the Philippines where an employee, holding a position of trust, commits an act that betrays the employer’s confidence. This act must be work-related and supported by substantial evidence.

Q2: What kind of employees are considered to be in ‘positions of trust and confidence’?

A: Typically, managerial employees, cashiers, accountants, and those handling sensitive company assets or confidential information are considered to hold positions of trust and confidence.

Q3: What is ‘substantial evidence’ in the context of loss of trust and confidence?

A: Substantial evidence means relevant evidence that a reasonable mind might accept as adequate to support a conclusion. It is more than a mere scintilla of evidence but less than proof beyond a reasonable doubt.

Q4: Can an employer dismiss an employee based on suspicion alone?

A: No. Philippine law requires substantial evidence. Suspicion, without concrete proof of work-related misconduct, is not a valid basis for dismissal due to loss of trust and confidence.

Q5: What are the consequences of illegal dismissal?

A: If an employee is illegally dismissed, they are entitled to reinstatement (if feasible), full backwages from the time of dismissal until reinstatement, and potentially separation pay if reinstatement is not viable. They may also be entitled to damages.

Q6: What should an employee do if they believe they are being unfairly accused of misconduct leading to loss of trust?

A: The employee should immediately seek legal advice from a labor lawyer, gather any evidence that can refute the accusations, and actively participate in any internal investigation or hearing to present their side of the story.

Q7: Does filing a criminal case against an employee automatically justify dismissal for loss of trust and confidence?

A: No. A criminal case and an administrative case for dismissal are separate. While a criminal charge might be related, the employer still needs to prove the elements of just cause for dismissal, including substantial evidence of work-related misconduct that led to loss of trust and confidence. The outcome of the criminal case is not determinative of the labor case.

ASG Law specializes in labor law and employment disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.