The Supreme Court affirmed that an employer’s decision to terminate an employee based on serious dishonesty and breach of trust is valid, provided there is reasonable basis for the loss of confidence. This ruling underscores the importance of honesty and integrity in employment, particularly for positions that handle finances. It also confirms the employer’s prerogative to manage its workforce and protect its assets, while adhering to due process requirements.

Diverted Funds and Dismissal: When Trust is Broken in the Workplace

This case revolves around Sonia F. Mariano’s dismissal from Martinez Memorial Colleges, Inc. (MMC), where she served as an Assistant Cashier for 32 years. The central question is whether MMC had a just cause to terminate her employment based on findings of dishonesty and diversion of funds, and whether the procedural requirements for dismissal were properly observed. The controversy began when an audit revealed irregularities in the handling of MMC’s cash accounts, leading to Mariano’s transfer and subsequent dismissal.

The petitioner, Sonia F. Mariano, argued that her dismissal was illegal, citing the lack of due process and the absence of solid grounds for loss of trust and confidence. She contended that the transfer from the Cashier’s Office to the Office of the Vice-President for Finance (OVP) was a form of constructive dismissal and that the charges against her were based on mere suspicion. The respondents, Martinez Memorial Colleges, Inc. (MMC), maintained that Mariano’s termination was justified due to serious dishonesty and the diversion of funds, as revealed by an audit report. MMC claimed that Mariano, as Assistant Cashier, was directly involved in the improper handling of cash accounts and the diversion of funds into “non-essential accounts”.

The Supreme Court addressed the issue of whether the CA erred in ruling that the NLRC did not commit grave abuse of discretion in upholding the dismissal of the petitioner. The Court emphasized the principle that its review of CA decisions in labor cases is limited to errors of law, focusing on whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision. It is crucial to note that the Court does not re-evaluate the factual findings of the NLRC but rather examines the legal basis of its decision.

Concerning the petitioner’s transfer, the Court affirmed that MMC’s act of transferring Mariano from the Cashier’s Office to the OVP for Finance was a valid exercise of management prerogative. The Court has consistently maintained a hands-off approach to legitimate business decisions of employers, provided such decisions are made in good faith to advance the company’s interests and do not circumvent the rights of employees. In this case, the Court found no evidence that MMC’s decision to transfer Mariano was intended to defeat her lawful rights.

The Court highlighted the employer’s right to reassign employees as a disciplinary measure or pending investigation. The ruling in Endico v. Quantum Foods Distribution Center supports the view that reassignments made by management pending investigation of violations of company policies fall within the ambit of management prerogative. As the Court stated:

Reassignments made by management pending investigation of violations of company policies and procedures allegedly committed by an employee fall within the ambit of management prerogative. The decision of Quantum Foods to transfer Endico pending investigation was a valid exercise of management prerogative to discipline its employees. The transfer, while incidental to the charges against Endico, was not meant as a penalty, but rather as a preventive measure to avoid further loss of sales and the destruction of Quantum Foods’ image and goodwill. It was not designed to be the culmination of the then on-going administrative investigation against Endico.

With regard to the petitioner’s dismissal, the Court affirmed the CA ruling that the NLRC did not commit grave abuse of discretion in declaring its validity. Article 296(c) (formerly Article 282[c]) of the Labor Code enumerates the just and valid causes for the dismissal of an employee, including fraud or willful breach of trust. The court found that MMC’s basis for the termination was grounded on “serious or gross dishonesty and for having committed an offense against [MMC],” which was based on the findings in the System Review Report submitted by Muallil.

The NLRC, in upholding the dismissal, highlighted the findings in the System Review Report, which revealed the petitioner’s role in handling cash accounts and the discovery of “non-essential accounts” where MMC’s funds were deposited. The Court of Appeals concurred with the NLRC, finding that the System Review Report provided sufficient grounds for MMC to terminate Mariano’s employment due to serious or gross dishonesty. The Supreme Court, in turn, found no reversible error on the part of the CA in upholding the NLRC’s decision.

The Court emphasized that the petitioner failed to rebut the findings in the System Review Report and that, as Assistant Cashier, she was likely aware of the alleged opening of the “non-essential accounts.” The Court cited Gargoles v. Del Rosario, emphasizing that dishonesty by an employee in charge of the employer’s money amounts to a breach of trust, justifying termination under the Labor Code. The Supreme Court has consistently held that employers have wider latitude in dismissing an employee for loss of trust and confidence, provided there is some basis for such loss.

Regarding the petitioner’s claim that she was denied due process, the Court reiterated the requirement for employers to furnish employees with two written notices before termination. In Sang-an v. Equator Knights Detective and Security Agency, Inc., the Court emphasized the importance of a first written notice informing the employee of the acts or omissions for which dismissal is sought, and a second written notice informing the employee of the employer’s decision to dismiss him. It ruled that the letter sent to Mariano specifying the grounds for termination and giving her an opportunity to explain her side satisfied the first written notice requirement.

The Court further clarified that due process does not require attaching the entire report on which the termination is based to the notice. It is sufficient that the particular acts or omissions for which dismissal is sought are indicated in the letter. It is also important to note that a hearing does not strictly require a personal or face-to-face confrontation; it is enough that the employee has a meaningful opportunity to controvert the charges and submit evidence.

FAQs

What was the key issue in this case?	The key issue was whether the employer, Martinez Memorial Colleges, Inc. (MMC), had a just cause to terminate the employee, Sonia F. Mariano, based on allegations of dishonesty and breach of trust, and whether due process was observed in the termination process.
What was the basis for the employee’s dismissal?	The employee’s dismissal was based on findings from an audit report that revealed improper handling of cash accounts and the diversion of funds into “non-essential accounts,” which the employer considered a serious breach of trust and dishonesty.
Did the employer follow due process requirements?	Yes, the court found that the employer followed due process by providing the employee with a written notice detailing the reasons for the proposed dismissal and giving her an opportunity to respond, even though a formal hearing was not conducted.
What is the significance of “loss of trust and confidence” in this case?	Loss of trust and confidence is a valid ground for termination, especially for employees in positions of responsibility, like cashiers. The court found that the employer had a reasonable basis to lose trust in the employee due to the financial irregularities discovered.
What is management prerogative?	Management prerogative refers to the inherent right of employers to manage their business and workforce, including decisions related to hiring, firing, transferring, and disciplining employees, as long as these decisions are made in good faith and do not violate the law.
Can an employer transfer an employee during an investigation?	Yes, the court affirmed that transferring an employee pending investigation is a valid exercise of management prerogative, especially when it is done as a preventive measure to protect the company’s interests.
What does the Labor Code say about dismissing an employee?	The Labor Code specifies the just and valid causes for dismissing an employee, including serious misconduct, fraud, or willful breach of trust, and requires employers to provide due process, which includes written notices and an opportunity for the employee to be heard.
What was the court’s final decision in this case?	The Supreme Court upheld the decision of the Court of Appeals, which affirmed the NLRC’s ruling that the employee’s dismissal was legal, finding no grave abuse of discretion on the part of the NLRC.

The Supreme Court’s decision reinforces the importance of upholding ethical standards and maintaining trust within the employer-employee relationship. It serves as a reminder that while employers have the right to manage their business and protect their assets, they must also adhere to due process requirements when terminating employees. This balance ensures fairness and protects the rights of both parties.

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: Sonia F. Mariano vs. Martinez Memorial Colleges, Inc., G.R. No. 194119, April 13, 2016