The Supreme Court has clarified that while an employer can terminate an employee for a valid reason, failing to strictly adhere to procedural due process will not invalidate the dismissal if a just or authorized cause exists. However, the employer must still compensate the employee with nominal damages for the procedural lapse. This means employers need to ensure they follow the correct steps when dismissing employees, even if there’s a legitimate reason for the termination. Ignoring these procedures can lead to financial penalties, even if the dismissal itself is upheld.

When Overstated Expenses Lead to Dismissal: Did the Company Follow the Rules?

Rowena Santos, a clinician at Integrated Pharmaceutical, Inc., was terminated for several reasons, including overstating transportation expenses, insubordination, and a negative attitude. The Labor Arbiter initially ruled in favor of Santos, citing a failure to comply with the two-notice requirement for termination. However, the Court of Appeals (CA) modified this decision, finding that there were just causes for termination but acknowledging the procedural lapses. The central legal question revolves around whether Integrated Pharma followed the correct procedures in dismissing Santos, and what the consequences are for failing to do so.

The Supreme Court (SC) ultimately sided with the CA’s decision, emphasizing that while just cause existed for Santos’ dismissal, the company failed to fully comply with procedural due process. The Court noted that Santos was indeed habitually tardy, as evidenced by performance evaluations and memoranda. This tardiness was deemed excessive, affecting the company’s overall productivity. Moreover, the Court found Santos guilty of insubordination, defined as the willful disobedience of reasonable and lawful employer orders. Specifically, she failed to remit collections on time, did not bring a demonstration unit to the office as instructed, and overstated her travel expenses despite instructions to report the correct amount.

The issue of overstated travel expenses was particularly scrutinized. Santos claimed she spent P10.00 on tricycles to reach Fort Bonifacio Hospital, while her supervisor discovered that only P2.00 multicabs were available. The Court sided with the company, finding that deliberately misreporting travel expenses constituted dishonesty and serious misconduct. Quoting Article 282 of the Labor Code, the Court emphasized that an employer may terminate employment for:

ART. 282. Termination by employer. An employer may terminate an employment for any of the following just causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work.

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(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.

The Court clarified that even if an employee is allotted a certain amount for expenses, they cannot keep the remainder if the actual expense is less. This act of deliberately misdeclaring expenses constitutes dishonesty and serious misconduct, both lawful grounds for dismissal.

While the SC acknowledged that Santos had already been reprimanded for some infractions mentioned in a previous memorandum, these past offenses could still be considered in determining the appropriate penalty for subsequent violations. In Philippine Rabbit Bus Lines, Inc. v. National Labor Relations Commission, the Court noted that past offenses are relevant in assessing an employee’s liability for a present violation.

Nor can it be plausibly argued that because the offenses were already given the appropriate sanctions, they cannot be taken against him. They are relevant in assessing private respondent’s liability for the present violation for the purpose of determining the appropriate penalty. To sustain private respondent’s argument that the past violation should not be considered is to disregard the warnings previously issued to him.

However, the SC also pointed out a critical flaw in the dismissal process. Even with a just cause for termination, the employer must still adhere to procedural due process. This involves providing the employee with two written notices and conducting a hearing. The first notice informs the employee of the specific acts or omissions that could lead to dismissal, while the second informs them of the employer’s decision to terminate employment.

In this case, the Court found that Integrated Pharma failed to meet these requirements. While the company presented two written notices, both were inadequate. The first notice did not indicate an impending termination or give Santos a reasonable timeframe to submit an explanation. The second notice, allegedly refused by Santos, was not properly served and did not provide sufficient time for her to respond. Critically, no hearing or conference was scheduled for Santos to present her case.

The Court cited King of Kings Transport, Inc. v. Mamac, outlining the requirements for the first written notice:

(1) The first written notice to be served on the employees should contain the specific causes or grounds for termination against them, and a directive that the employees are given the opportunity to submit their written explanation within a reasonable period. ‘Reasonable opportunity’ under the Omnibus Rules means every kind of assistance that management must accord to the employees to enable them to prepare adequately for their defense. This should be construed as a period of at least five (5) calendar days from receipt of the notice to give the employees an opportunity to study the accusation against them, consult a union official or lawyer, gather data and evidence, and decide on the defenses they will raise against the complaint. Moreover, in order to enable the employees to intelligently prepare their explanation and defenses, the notice should contain a detailed narration of the facts and circumstances that will serve as basis for the charge against the employees. A general description of the charge will not suffice. Lastly, the notice should specifically mention which company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged against the employees.

Because Integrated Pharma did not follow these procedures, the Court upheld the CA’s decision to award Santos nominal damages, despite affirming the existence of just cause for her dismissal. The Court relied on Agabon v. National Labor Relations Commission, stating that a lack of statutory due process does not invalidate a dismissal for cause but warrants compensation for the procedural violation.

FAQs

What was the key issue in this case?	The key issue was whether an employee’s dismissal was legal when just cause existed but procedural due process was not strictly followed by the employer. The court had to balance the employer’s right to manage its business with the employee’s right to due process.
What is “just cause” for termination?	“Just cause” refers to specific reasons outlined in the Labor Code that allow an employer to terminate an employee. These reasons include serious misconduct, willful disobedience, gross negligence, fraud, or breach of trust.
What is “procedural due process” in termination cases?	Procedural due process requires employers to follow specific steps when terminating an employee, including providing two written notices and conducting a hearing. The notices must clearly state the reasons for the intended termination and give the employee an opportunity to respond.
What are the two notices required for due process?	The first notice informs the employee of the specific acts or omissions that could lead to dismissal, giving them a chance to explain. The second notice informs the employee of the employer’s decision to terminate their employment.
What happens if an employer fails to follow due process?	If an employer fails to follow procedural due process, the dismissal may not be considered illegal if there is just cause, but the employer may be required to pay nominal damages to the employee. This compensates the employee for the procedural violation.
What are nominal damages?	Nominal damages are a small amount of money awarded to a plaintiff who has suffered a legal wrong but has not experienced substantial financial loss. In this context, it compensates the employee for the employer’s failure to follow proper procedure.
Can past offenses be considered in a termination case?	Yes, past offenses can be considered when determining the appropriate penalty for a current violation. These past offenses can help an employer justify a stricter penalty, such as termination, if the employee has a history of misconduct.
What does it mean to be “habitually tardy”?	Habitual tardiness refers to a repeated pattern of being late, which negatively affects the employee’s performance and the company’s productivity. This can be considered a form of neglect of duty and a just cause for termination.
What constitutes insubordination?	Insubordination is the willful disobedience of reasonable and lawful orders from an employer. For it to be a just cause for dismissal, the order must be lawful, made known to the employee, and related to their job duties.
What is considered dishonesty in the context of employment?	Dishonesty in employment includes acts like falsifying documents, stealing company property, or misrepresenting expenses. These acts breach the trust between the employer and employee and can be grounds for termination.

This case underscores the importance of balancing the employer’s right to manage their business with the employee’s right to due process. Even when just cause exists for termination, employers must meticulously follow the required procedures to avoid liability for nominal damages. By adhering to these guidelines, companies can minimize legal risks and ensure fair treatment of their 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: Rowena A. Santos v. Integrated Pharmaceutical, Inc., G.R. No. 204620, July 11, 2016