The Supreme Court ruled that a bank OIC-Manager’s gross negligence and failure to supervise staff, leading to a significant financial loss, constitute a valid basis for termination due to loss of trust and confidence. The court distinguished between managerial and rank-and-file employees, emphasizing that a managerial employee can be dismissed based on reasonable belief of breached trust, without needing direct evidence of involvement in the wrongdoing. This decision upholds the employer’s right to protect its interests and maintain public trust in the banking system, while also ensuring employees receive due process and lawful compensation.

When Oversight Fails: Did a Bank Manager’s Inaction Justify Termination?

This case revolves around the dismissal of Ysagani V. Paez, the Officer-In-Charge (OIC)-Manager of the Community Rural Bank of San Isidro (N.E.), Inc.’s extension office. Paez was terminated following a significant incident where a depositor was allowed to withdraw a substantial amount of money against uncleared checks, resulting in a considerable loss to the bank. The central question is whether Paez’s negligence and failure to properly supervise his staff constituted a breach of trust sufficient to warrant his dismissal, even without direct evidence of his personal involvement in the fraudulent transaction.

The controversy began on March 20, 1997, when Angelito Santos, a client-depositor, deposited several checks amounting to P4,344,545.00 into his current account. Despite the checks not yet being cleared, Santos was allowed to withdraw the entire amount immediately. Subsequently, the deposited checks were dishonored due to the account being closed. Petitioner’s President and General Manager, Abelardo P. Samson, issued memoranda to the respondent to explain why no administrative action should be taken against him for accepting the demand deposit and allowing an unfunded check to be cleared.

Following an internal investigation, Paez was placed under preventive suspension, which was later extended. The bank’s Board of Directors eventually approved a resolution terminating Paez’s employment, along with other employees involved in the incident, citing gross dishonesty, negligence, and misconduct, and/or serious breach of trust and confidence. Paez then filed a complaint for illegal suspension and illegal dismissal.

The Labor Arbiter initially ruled in favor of Paez, declaring his dismissal illegal and ordering his reinstatement with backwages. However, the bank appealed to the National Labor Relations Commission (NLRC), which affirmed the Labor Arbiter’s decision. The NLRC held that the bank failed to prove Paez’s direct participation in the fraudulent transaction, pointing to other employees as primarily responsible. This prompted the bank to file a petition for certiorari with the Court of Appeals (CA), which was subsequently dismissed for lack of merit.

The Supreme Court approached the case with a nuanced understanding of labor law. The Labor Code allows an employer to terminate an employee for just cause, supported by substantial evidence. This evidence need not reach the level of proof beyond a reasonable doubt required in criminal cases, but it must be more than a mere scintilla. Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds might opine otherwise. Further, the Court distinguished that such requirements of substantial evidence were sufficient, thus, placing undue emphasis on an Internal Auditor testimony in the preliminary investigation.

Crucially, the Supreme Court distinguished between rank-and-file employees and managerial employees when assessing loss of trust and confidence as grounds for dismissal. Recent decisions of the Supreme Court have drawn a distinction between rank-and-file personnel and managerial employees regarding the application of the doctrine of loss of trust and confidence. For managerial employees, the Court explained that “the mere existence of a basis for believing that such employee has breached the trust of his employer would suffice for his dismissal.”

The court emphasized Paez’s position as OIC-Manager, highlighting his responsibility for overseeing the bank’s operations and ensuring compliance with established procedures. Paez’s failure to detect the irregularity and his reliance on the internal auditor to bring the matter to his attention demonstrated a lack of diligence and competence expected of someone in his position. This negligence, the Court found, justified the bank’s loss of trust and confidence in him, warranting his termination.

However, the Court noted that Paez’s preventive suspension exceeded the maximum period allowed by law. The Implementing Rules of the Labor Code state that a preventive suspension should not last longer than thirty (30) days. Because his preventive suspension exceeded the alloted time, the decision affirmed the grant of backwages to Paez.

FAQs

What was the key issue in this case?	The key issue was whether the bank had just cause to dismiss its OIC-Manager for loss of trust and confidence due to negligence in supervising his staff, even without direct evidence of involvement in the fraudulent transaction.
What is the difference in standards between rank-and-file employees and management employees for breach of trust?	The Supreme Court held that, for rank-and-file personnel, the involvement in the alleged events in question must be proven. However, when regarding management employees, the mere existence of a basis for believing that employee breached trust, it is enough to warrant dismissal.
What are examples of things OIC-Manager did wrong in the bank transaction?	It was noted that a single withdrawal of P4,344,545.00 is not a measly sum that can be withdrawn unnoticed and a regular bank manager is duty-bound to review the bank transactions in the daily proof sheets. In this case, he claimed that he did not sign the daily proof sheets because the statements of accounts on demand deposits were not attached. This shows the OIC-Manager’s lackadaisical attitude toward the demands of his job.
Did the Court rule in favor of the bank in this case?	Yes, the Court ruled in favor of the bank. The decision reverses the Court of Appeals ruling regarding the illegal dismissal of Paez and the bank’s lost of trust and confidence on him. However, the Court affirmed the award of backwages because Paez was placed under illegal suspension.
Is a preliminary investigation useful to determine negligence in this case?	No, reliance by the NLRC and CA upon the stenographic notes on the testimony of Internal Auditor Vargas in the preliminary investigation of the criminal case is misplaced.
Can an employee be fired because his performance has an impact with public interest?	Yes, it is worth stressing that a bank owes great fidelity to the public it deals with, its operation being essentially imbued with public interest. It cannot be compelled to continue in its employ a person in whom it has lost trust and confidence and whose continued employment would patently be inimical to the bank’s interest.
How long can a worker undergo a preventive suspension?	The Implementing Rules of Book V: Rule XXIII (Termination of Employment) of the Labor Code provides that a preventive suspension shall not exceed a maximum period of thirty (30) days.
Did the court rule in favor of the employee in this case?	The Supreme Court’s partially granted the bank’s claims. The Court dismissed the complaint for illegal dismissal because the dismissal was legal, however, the award of backwages for illegal suspension to the employee still stood.

This case underscores the significance of diligence and supervisory responsibility for managerial employees, especially in sectors like banking where public trust is paramount. While employers have the right to terminate employees for just cause, they must adhere to due process and statutory limits, such as those governing preventive suspensions.

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: COMMUNITY RURAL BANK OF SAN ISIDRO VS. PAEZ, G.R. NO. 158707, November 27, 2006