The Supreme Court has clarified that an employer’s investigation into employee misconduct, even if it causes stress or inconvenience to the employee, does not automatically equate to constructive dismissal. The Court emphasized that employers have the right to investigate potential wrongdoing and that employees involved in such inquiries cannot automatically claim they are being forced out. This ruling balances the protection of labor rights with the legitimate exercise of management prerogatives in maintaining a fair and honest workplace.

When Scrutiny Feels Like Sabotage: Is an Investigation a Constructive Dismissal?

Heidi Pelayo, an accounting clerk at Philippine Span Asia Carriers Corporation (formerly Sulpicio Lines, Inc.), found herself at the center of an internal investigation after the company uncovered anomalous transactions at its Davao City branch. As the employee responsible for preparing vouchers and checks, Pelayo was asked to cooperate with the investigation, which required her to travel to the company’s Cebu main office for further questioning. Feeling pressured and accused of complicity, Pelayo walked out of an interview, was hospitalized for stress, and subsequently filed a complaint for constructive dismissal. The central legal question is whether the employer’s actions during the investigation created such a hostile work environment that Pelayo was effectively forced to resign.

The Supreme Court reversed the Court of Appeals’ decision, finding no grave abuse of discretion on the part of the National Labor Relations Commission (NLRC) in ruling that Pelayo was not constructively dismissed. The Court emphasized the principle of management prerogative, recognizing that employers have the right to regulate all aspects of employment, including discipline, dismissal, and recall of workers. Labor laws, while designed to protect employees, should not be applied in a way that undermines the valid exercise of management’s authority.

Indeed, basic is the recognition that even as our laws on labor and social justice impel a ‘preferential view in favor of labor,’ [e]xcept as limited by special laws, an employer is free to regulate, according to his own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time, place and manner of work, tools to be used, processes to be followed, supervision of workers, working regulations, transfer of employees, work supervision, lay-off of workers and the discipline, dismissal and recall of work.

Building on this principle, the Court underscored that disciplinary actions extend beyond simply setting rules and imposing sanctions; they also involve mechanisms to ensure compliance, including investigations into employee wrongdoing. While due process is essential, the Court clarified that labor laws do not dictate the specific methods employers must use during these investigations. Employers have the flexibility to adopt various approaches, such as interviews, written statements, or probes by designated panels.

In cases of termination for just cause, employers must adhere to the two-notice rule. As the Supreme Court explained in King of Kings Transport v. Mamac, this entails providing the employee with a written notice outlining the specific grounds for termination and an opportunity to submit a written explanation within a reasonable period. Furthermore, after the first notice, the employer should conduct a hearing or conference where the employee can clarify their defenses, present evidence, and rebut the evidence presented against them. Lastly, a written notice of termination must be served, indicating that all circumstances have been considered and grounds have been established to justify the severance of employment.

However, the Court clarified that the two-notice rule primarily applies when the employer has already determined that there are probable grounds for dismissing a specific employee. It does not extend to preliminary investigations triggered by the initial discovery of wrongdoing. These preliminary investigations are essential for identifying potential suspects and gathering information before initiating disciplinary proceedings. The Court stated that, subject to ethical and legal boundaries, employers can adopt any means for conducting these investigations.

In addressing Pelayo’s constructive dismissal claim, the Court reiterated the established standards. Constructive dismissal occurs when an employer’s discriminatory, insensitive, or disdainful actions become so unbearable that the employee has no choice but to resign. The key test is whether a reasonable person in the employee’s position would have felt compelled to give up their employment under the circumstances. The Court however, cautioned that not every inconvenience or difficulty an employee endures constitutes constructive dismissal.

The Court emphasized that resolving constructive dismissal claims requires a balanced assessment of the circumstances, considering whether the employer acted fairly in exercising their prerogative. It involves weighing evidence and considering the totality of circumstances. In Pelayo’s case, the Court found no objective proof that the investigation was conducted in a hostile or coercive manner. The fact that Pelayo was asked to cooperate, even if it caused her stress, did not automatically lead to a conclusion of constructive dismissal.

The Supreme Court determined that it was reasonable for the company to involve Pelayo in the investigation, given her role as an accounting clerk responsible for preparing vouchers and checks. The anomalies discovered related to discrepancies in these documents, making it logical to seek her input. Moreover, the Court noted that the company’s referral of the matter to the National Bureau of Investigation (NBI) demonstrated its willingness to seek an independent assessment, further negating any claims of malicious intent.

Additionally, the Court observed that Pelayo’s decision to preempt the investigation by ceasing to report to work could be interpreted as an attempt to avoid scrutiny. While not definitively concluding that Pelayo was complicit in the anomalies, the Court cautioned against condoning actions that undermine legitimate investigations. To do so, the Court warned, would discourage employers from addressing employee misconduct and create a chilling effect on bona fide investigations.

What is constructive dismissal?	Constructive dismissal occurs when an employer creates such an intolerable work environment that the employee is forced to resign. It’s essentially a disguised form of termination, where the employee’s resignation is not truly voluntary.
What is management prerogative?	Management prerogative refers to the inherent right of employers to regulate and control all aspects of their business operations and workforce. This includes hiring, firing, promoting, and setting company policies, subject to certain limitations prescribed by law.
What is the “two-notice rule”?	The “two-notice rule” is a procedural requirement in Philippine labor law that employers must follow when terminating an employee for just cause. It involves issuing two written notices to the employee: one informing them of the grounds for termination and another informing them of the final decision to terminate.
Does stress from a workplace investigation automatically mean constructive dismissal?	No, the Supreme Court has clarified that stress and inconvenience resulting from a legitimate workplace investigation do not automatically constitute constructive dismissal. There must be evidence that the employer acted unfairly or created an intolerable work environment.
Can an employer conduct an investigation without following the “two-notice rule”?	Yes, the “two-notice rule” primarily applies when the employer has already decided to terminate the employee. Preliminary investigations to gather information and identify potential suspects are not subject to this rule.
What factors did the Court consider in determining there was no constructive dismissal?	The Court considered that the company had legitimate reasons to investigate Pelayo, given her role in handling the financial transactions in question. It also considered the company’s efforts to seek an independent assessment from the NBI and the lack of evidence of coercion or harassment during the investigation.
Is it okay for an employee to resign to avoid participating in an investigation?	While an employee has the right to resign, the Court cautioned against doing so to preempt a legitimate investigation. Such actions may be viewed with suspicion and could undermine the employee’s claim of constructive dismissal.
What does this case suggest that employers should do?	This case suggests that employers should conduct investigations fairly and objectively, with legitimate reasons. They should make legitimate measures to address employee iniquity by not tying employers’ hands, incapacitating them, and preemptively defeating investigations.

The Philippine Span Asia Carriers Corporation v. Heidi Pelayo case underscores the delicate balance between protecting employee rights and upholding an employer’s ability to maintain a fair and honest workplace. The ruling provides valuable guidance for employers conducting internal investigations, emphasizing the importance of acting reasonably and without malice, even when such investigations may cause stress or discomfort to employees. It serves as a reminder that not every workplace challenge equates to constructive dismissal, and that employers have a right to investigate potential wrongdoing without fear of unwarranted legal repercussions.

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: Philippine Span Asia Carriers Corporation v. Heidi Pelayo, G.R. No. 212003, February 28, 2018