The Supreme Court ruled that an employee who resigns due to the employer’s failure to pay wages is considered constructively dismissed, which is tantamount to illegal dismissal. This means employers cannot force employees into quitting by creating intolerable working conditions, such as withholding salaries. If an employee is forced to resign under such conditions, they are entitled to backwages and separation pay.

Dream Job or Nightmare? Examining Constructive Dismissal in the Hospitality Industry

This case revolves around Stephen B. Johnson, an Australian citizen, who was hired as an Operations Manager for Dreamland Hotel Resort. A dispute arose regarding unpaid salaries and the circumstances surrounding Johnson’s resignation. The central legal question is whether Johnson’s resignation constituted a voluntary act or a constructive dismissal due to the employer’s actions.

Dreamland Hotel Resort argued that Johnson abandoned his post. They claimed his employment contract was not fully in effect because he had not yet secured an Alien Employment Permit (AEP) and Tax Identification Number (TIN). However, Johnson contended that he was constructively dismissed due to the non-payment of his salaries. This made his working conditions unbearable. He also stated he was promised certain benefits that were never provided. The Labor Arbiter (LA) initially sided with Dreamland, dismissing Johnson’s complaint. The LA found that Johnson voluntarily resigned. This decision was later reversed by the National Labor Relations Commission (NLRC).

The NLRC determined that Johnson’s resignation was, in fact, a constructive dismissal. Constructive dismissal is an involuntary resignation. This happens when continued employment becomes impossible, unreasonable, or unlikely due to the employer’s actions. The NLRC highlighted that Johnson had not been paid a significant portion of his salary. This made his decision to leave understandable. This ruling entitled Johnson to backwages and separation pay. The Court of Appeals (CA) initially dismissed Dreamland’s petition questioning the NLRC decision. They cited technical procedural errors, but the Supreme Court opted to delve into the merits of the case.

The Supreme Court emphasized the importance of substantial justice over strict adherence to procedural rules. “While it is desirable that the Rules of Court be faithfully observed, courts should not be so strict about procedural lapses that do not really impair the proper administration of justice.  If the rules are intended to ensure the proper and orderly conduct of litigation, it is because of the higher objective they seek which are the attainment of justice and the protection of substantive rights of the parties.  Thus, the relaxation of procedural rules, or saving a particular case from the operation of technicalities when substantial justice requires it, as in the instant case, should no longer be subject to cavil.” This allowed the Court to examine the core issues of the case, despite the initial procedural missteps.

The Court then addressed Dreamland’s argument that Johnson’s employment only commenced in October 2007. They stated this was despite the employment contract stipulating that it would begin on August 1, 2007. The Court found Dreamland’s claim unconvincing. Johnson provided detailed accounts of the work he performed. He said he was performing tasks from August 1, 2007, even before the hotel’s official opening. Dreamland failed to sufficiently rebut these claims. This reinforces the principle that doubts are resolved in favor of the employee. As the Court stated, “the consistent rule is that if doubt exists between the evidence presented by the employer and that by the employee, the scales of justice must be tilted in favor of the latter.”

Furthermore, the Court addressed Dreamland’s argument. They said the employment contract was contingent on Johnson securing an AEP and TIN. The Court determined this argument was without merit. Johnson presented proof that he was exempt from securing an AEP as a permanent resident, according to Department of Labor and Employment (DOLE) regulations. This is stated under Rule I- Coverage and Exemption: “2.  Exemption. The following categories of foreign nationals are exempt from securing an employment permit: x x x 2.7 Resident foreign nationals”.

The Court also found that while Johnson only secured his TIN after his resignation, this did not invalidate the contract. Moreover, the employment contract did not explicitly state that its effectivity was contingent on securing these documents. The Court cited Ortañez v. CA, stating that “Spoken words could be notoriously unreliable unlike a written contract which speaks of a uniform language.  Thus, under the general rule in Section 9 of Rule 130 of the Rules of Court, when the terms of an agreement were reduced to writing, as in this case, it is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents thereof.”

The Court affirmed the NLRC’s finding of constructive dismissal. The employer’s failure to pay Johnson’s salary created an unbearable working condition. As the Court stated, “Even the most reasonable employee would consider quitting his job after working for three months and receiving only an insignificant fraction of his salaries.  There was, therefore, not an abandonment of employment nor a resignation in the real sense, but a constructive dismissal, which is defined as an involuntary resignation resorted to when continued employment is rendered impossible, unreasonable or unlikely x x x.”

The Supreme Court underscored that because Johnson was constructively dismissed, he was illegally dismissed. The Court emphasized that an illegally dismissed employee is entitled to two reliefs: backwages and reinstatement. Separation pay may avail in lieu of reinstatement if reinstatement is no longer practical or in the best interest of the parties. The normal consequences of respondents’ illegal dismissal, then, are reinstatement without loss of seniority rights, and payment of backwages computed from the time compensation was withheld up to the date of actual reinstatement.  Where reinstatement is no longer viable as an option, separation pay equivalent to one (1) month salary for every year of service should be awarded as an alternative.  The payment of separation pay is in addition to payment of backwages.

Given the strained relations between the parties, the NLRC awarded separation pay in lieu of reinstatement. The Supreme Court upheld this decision but modified the computation of backwages and separation pay. The Court stated that because Johnson’s employment contract was for three years, the backwages should be computed from November 3, 2007, to August 1, 2010. Furthermore, the separation pay should be equivalent to three months’ salary, reflecting the three-year contract. This underscores the importance of honoring the terms of an employment contract, even in cases of illegal dismissal.

FAQs

What is constructive dismissal?	Constructive dismissal occurs when an employer creates intolerable working conditions that force an employee to resign. This is considered an involuntary termination and is treated as illegal dismissal.
What is an Alien Employment Permit (AEP)?	An AEP is a permit required for foreign nationals to work in the Philippines. However, certain categories of foreign nationals, such as permanent residents, are exempt from this requirement.
What are the remedies for illegal dismissal?	An illegally dismissed employee is typically entitled to reinstatement and backwages. If reinstatement is not feasible due to strained relations, separation pay is awarded in lieu of reinstatement, in addition to backwages.
How are backwages calculated in this case?	Backwages are calculated from the time the employee was illegally dismissed until the end of their original employment contract. In this case, it was from November 3, 2007, to August 1, 2010.
How is separation pay calculated in this case?	Separation pay is calculated based on the length of the employment contract. In this case, Johnson was awarded three months’ salary, equivalent to the three-year term of his contract.
Why did the Supreme Court address the merits of the case despite procedural errors?	The Supreme Court prioritized substantial justice over strict adherence to procedural rules. It wanted to ensure that the employee’s rights were protected, given the varying factual interpretations by the LA and NLRC.
What is the significance of the employment contract in this case?	The employment contract was crucial in determining the start date of employment, the duration of the contract, and the corresponding remedies for illegal dismissal. Its terms were upheld despite arguments about the lack of certain permits.
What does this case tell us about the burden of proof in labor disputes?	This case highlights that when there is doubt between the employer’s evidence and the employee’s evidence, the scales of justice are tilted in favor of the employee.

This case underscores the importance of employers fulfilling their obligations to employees, especially regarding timely payment of wages. It also highlights the judiciary’s commitment to protecting employees’ rights and ensuring fair labor practices. Employers must create a work environment that is conducive for employees.

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: Dreamland Hotel Resort and Westley J. Prentice vs. Stephen B. Johnson, G.R. No. 191455, March 12, 2014