International Management Services vs.

Logarta
G.r. No. 163657 April 18, 2012

FACTS:
Recruitment agency, International Management Services (IMS), owned and operated by Marilyn
C. Pascual, deployed respondent Roel P. Logarta to work for Petrocon Arabia Limited (Petrocon) in
Alkhobar, Kingdom of Saudi Arabia, in connection with general engineering services of Petrocon for the
Saudi Arabian Oil Company (Saudi Aramco). Respondent was employed for a period of two (2) years,
commencing on October 2, 1997, with a monthly salary of eight hundred US Dollars (US$800.00).
On April 29, 1998, Saudi Aramco notified Petrocon that due to changes in the general
engineering services work forecast for 1998, the man-hours that were formerly allotted to Petrocon is
going to be reduced by 40% which constrained Petrocon to reduce its personnel.
Thus, on June 1, 1998, Petrocon gave respondent a written notice informing the latter that due
to the lack of project works related to his expertise, he is given a 30-day notice of termination, and that
his last day of work with Petrocon will be on July 1, 1998. Petrocon also informed respondent that all
due benefits in accordance with the terms and conditions of his employment contract will be paid to
respondent, including his ticket back to the Philippines.
Before his departure from Saudi Arabia, respondent received his final paycheck from Petrocon
amounting SR7,488.57.
Upon his return, respondent filed a complaint with the Regional Arbitration Branch VII, National
Labor Relations Commission (NLRC), Cebu City, against petitioner as the recruitment agency which
employed him for employment abroad. In filing the complaint, respondent sought to recover his
unearned salaries covering the unexpired portion of his employment contract with Petrocon on the
ground that he was illegally dismissed.
The Labor Arbiter rendered judgment in favor of the respondent and ordered petitioner to pay
the peso equivalent of US$5,600.00 based on the rate at the time of actual payment, as payment of his
wages for the unexpired portion of his contract of employment. The NLRC on appeal affirmed the Labor
Arbiter’s decision but reduced the award to only US$4,800.00 or its peso equivalent at the time of
payment. The CA likewise dismissed the petition and affirmed the NLRC decision.

ISSUE:
Whether or not respondents dismissal through retrenchment illegal.

SC RULING:
No.
Retrenchment is the reduction of work personnel usually due to poor financial returns, aimed to
cut down costs for operation particularly on salaries and wages. It is one of the economic grounds to
dismiss employees and is resorted by an employer primarily to avoid or minimize business losses.
Retrenchment programs are purely business decisions within the purview of a valid and
reasonable exercise of management prerogative. It is one way of downsizing an employer's workforce
and is often resorted to by the employer during periods of business recession, industrial depression, or
seasonal fluctuations, and during lulls in production occasioned by lack of orders, shortage of materials,
conversion of the plant for a new production program, or introduction of new methods or more efficient
machinery or automation. It is a valid management prerogative, provided it is done in good faith and the
employer faithfully complies with the substantive and procedural requirements laid down by law and
jurisprudence.
 Philippine Law recognizes retrenchment as a valid cause for the dismissal of a migrant or
overseas Filipino worker under Article 283 of the Labor Code.
Thus, retrenchment is a valid exercise of management prerogative subject to the strict
requirements set by jurisprudence, to wit:
(1)That the retrenchment is reasonably necessary and likely to prevent business losses
which, if already incurred, are not merely de minimis, but substantial, serious, actual
and real, or if only expected, are reasonably imminent as perceived objectively and in
good faith by the employer;
(2)That the employer served written notice both to the employees and to the
Department of Labor and Employment at least one month prior to the intended date of
retrenchment;
(3)That the employer pays the retrenched employees separation pay equivalent to one
month pay or at least 1/2 month pay for every year of service, whichever is higher;
(4)That the employer exercises its prerogative to retrench employees in good faith for
the advancement of its interest and not to defeat or circumvent the employees' right to
security of tenure; and
(5)That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status,…efficiency,
seniority, physical fitness, age, and financial hardship for certain workers.
Applying the above-stated requisites for a valid retrenchment in the case at bar, it is apparent
that the first, fourth and fifth requirements were complied with by respondent's employer. However,
the second and third requisites were absent when Petrocon terminated the services of respondent.
As aptly found by the NLRC and justly sustained by the CA, Petrocon exercised its prerogative to
retrench its employees in good faith and the considerable reduction of work allotments of Petrocon by
Saudi Aramco was sufficient basis for Petrocon to reduce the number of its personnel.
As for the notice requirement, however, contrary to petitioner's contention, proper notice to
the DOLE within 30 days prior to the intended date of retrenchment is necessary and must be complied
with despite the fact that respondent is an overseas Filipino worker. In the present case, although
respondent was duly notified of his termination by Petrocon 30 days before its effectivity, no allegation
or proof was advanced by petitioner to establish that Petrocon ever sent a notice to the DOLE 30 days
before the respondent was terminated. Thus, this requirement of the law was not complied with.
In the case at bar, despite the fact that respondent was employed by Petrocon as an OFW in
Saudi Arabia, still both he and his employer are subject to the provisions of the Labor Code when
applicable. The basic policy in this jurisdiction is that all Filipino workers, whether employed locally or
overseas, enjoy the protective mantle of Philippine labor and social legislations.
Also, respondent is entitled to the payment of his separation pay. However, this Court disagrees
with the conclusion of the Labor Arbiter, the NLRC and the CA, that respondent should be paid his
separation pay in accordance with the provision of Section 10 of R.A. No. 8042. A plain reading of the
said provision clearly reveals that it applies only to an illegally dismissed overseas contract worker or a
worker dismissed from overseas employment without just, valid or authorized cause.
In the case at bar, notwithstanding the fact that respondent's termination from his employment
was procedurally infirm, having not complied with the notice requirement, nevertheless the same
remains to be for a just, valid and authorized cause, i.e., retrenchment as a valid exercise of
management prerogative. To stress, despite the employer's failure to comply with the one-month notice
to the DOLE prior to respondent's termination, it is only a procedural infirmity which does not render
the retrenchment illegal. In Agabon v. NLRC, this Court ruled that when the dismissal is for a just cause,
the absence of proper notice should not nullify the dismissal or render it illegal or ineffectual. Instead,
the employer should indemnify the employee for violation of his statutory rights.
 Consequently, it is Article 283 of the Labor Code and not Section 10 of R.A. No. 8042 that is
controlling. Thus, respondent is entitled to payment of separation pay equivalent to one (1) month pay,
or at least one-half (1/2) month pay for every year of service, whichever is higher. Considering that
respondent was employed by Petrocon for a period of eight (8) months, he is entitled to receive one (1)
month pay as separation pay. In addition, pursuant to current jurisprudence, for failure to fully comply
with the statutory due process of sufficient notice, respondent is entitled to nominal damages in the
amount P50,000.00.