FLIGHT ATTENDANTS AND G.R. No. 178083
STEWARDS ASSOCIATION OF
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Leonardo-De Castro,* JJ.
PHILIPPINE AIRLINES, INC.,
PATRIA CHIONG and COURT Promulgated:
x ---------------------------------------------------------------------------------------- x
for review on certiorari assails the Decision of
the Court of Appeals (CA) dated August 23, 2006 in CA-G.R. SP No. 87956 which
affirmed the National Labor Relations Commissions (NLRC) decision setting
aside the Labor Arbiters findings of illegal retrenchment and ordering the
reinstatement of the retrenched Philippine Airlines, Inc. (PAL)
employee-members of petitioner Flight Attendants and Stewards Association of
the Philippines (FASAP), with payment of backwages, moral and exemplary
damages, and attorneys fees. Also assailed is the
FASAP is the duly certified collective bargaining representative of PAL flight
attendants and stewards, or collectively known as PAL cabin crew personnel. Respondent PAL is a domestic corporation
organized and existing under the laws of the Republic of the
In implementing the retrenchment scheme, PAL adopted its so-called Plan 14 whereby PALs fleet of aircraft would be reduced from 54 to 14, thus requiring the services of only 654 cabin crew personnel. PAL admits that the retrenchment is wholly premised upon such reduction in fleet, and to the strike staged by PAL pilots since this action also translated into a reduction of flights. PAL claims that the scheme resulted in savings x x x amounting to approximately P24 million per month savings that would greatly alleviate PALs financial crisis.
Prior to the full implementation of the assailed retrenchment program, FASAP and PAL conducted a series of consultations and meetings and explored all possibilities of cushioning the impact of the impending reduction in cabin crew personnel. However, the parties failed to agree on how the scheme would be implemented. Thus PAL unilaterally resolved to utilize the criteria set forth in Section 112 of the PAL-FASAP Collective Bargaining Agreement (CBA) in retrenching cabin crew personnel: that is, that retrenchment shall be based on the individual employees efficiency rating and seniority.
PAL determined the cabin crew personnel efficiency ratings through an evaluation of the individual cabin crew members overall performance for the year 1997 alone. Their respective performance during previous years, i.e., the whole duration of service with PAL of each cabin crew personnel, was not considered. The factors taken into account on whether the cabin crew member would be retrenched, demoted or retained were: 1) the existence of excess sick leaves; 2) the crew members being physically overweight; 3) seniority; and 4) previous suspensions or warnings imposed.
While consultations between FASAP and PAL were ongoing, the latter began implementing its retrenchment program by initially terminating the services of 140 probationary cabin attendants only to rehire them in April 1998. Moreover, their employment was made permanent and regular.
Meanwhile, in June 1998, PAL was placed under corporate rehabilitation and a rehabilitation plan was approved per Securities and Exchange Commission (SEC) Order dated June 23, 1998 in SEC Case No. 06-98-6004.
4, 1998, PAL, through its Chairman and Chief Executive Officer (CEO) Lucio Tan,
made an offer to transfer shares of stock to its employees and three seats in
its Board of Directors, on the condition that all the existing Collective
Bargaining Agreements (CBAs) with its employees would be suspended for 10 years,
but it was rejected by the employees. On
1. Each PAL employee shall be granted 60,000 shares of stock with a par value of P5.00, from Mr. Lucio Tans shareholdings, with three (3) seats in the PAL Board and an additional seat from government shares as indicated by His Excellency;
2. Likewise, PALEA shall, as far as practicable, be granted adequate representation in committees or bodies which deal with matters affecting terms and conditions of employment;
3. To enhance and strengthen labor-management relations, the existing Labor-Management Coordinating Council shall be reorganized and revitalized, with adequate representation from both PAL management and PALEA;
4. To assure investors and creditors of industrial peace, PALEA agrees, subject to the ratification by the general membership, (to) the suspension of the PAL-PALEA CBA for a period of ten (10) years, provided the following safeguards are in place:
a. PAL shall continue recognizing PALEA as the duly certified bargaining agent of the regular rank-and-file ground employees of the Company;
b. The union shop/maintenance of membership provision under the PAL-PALEA CBA shall be respected.
c. No salary deduction, with full medical benefits.
5. PAL shall
grant the benefits under the
6. PALEA members who have been retrenched but have not received separation benefits shall be granted priority in the hiring/rehiring of employees.
7. In the absence of applicable Company rule or regulation, the provisions of the Labor Code shall apply.
referendum conducted on
in November 1998, or five months after the
In December 1998, PAL submitted a stand-alone rehabilitation plan to the SEC by which it undertook a recovery on its own while keeping its options open for the entry of a strategic partner in the future. Accordingly, it submitted an amended rehabilitation plan to the SEC with a proposed revised business and financial restructuring plan, which required the infusion of US$200 million in new equity into the airline.
Respondents appealed to the NLRC which reversed the decision of the Labor Arbiter. The NLRC directed the lifting of the writ of injunction and to vacate the directive setting aside the notices of retrenchment and reinstating the dismissed cabin crew to their respective positions and in the PAL payroll.
filed its Position Paper
Meanwhile, instead of being dismissed in accordance with the Kurangking case, the FASAP case (NLRC-NCR Case No. 06-05100-98) was consolidated with the following cases:
1. Ramon and Marian Joy Camahort v. PAL, et al. (NLRC-NCR Case No. 00-07-05854-98);
2. Erlinda Arevalo and Chonas Santos v. PAL, et al. (NLRC-NCR Case No. 00-07-09793-98); and
3. Victor Lanza v. PAL, et al. (NLRC-NCR Case No.00-04-04254-99).
WHEREFORE, premises considered, this Office renders judgment declaring that Philippine Airlines, Inc., illegally retrenched One Thousand Four Hundred (1,400) cabin attendants including flight pursers for effecting the retrenchment program in a despotic and whimsical manner. Philippine Airlines, Inc. is likewise hereby ordered to:
1. Reinstate the cabin attendants retrenched and/or demoted to their previous positions;
2. Pay the concerned cabin attendants their full backwages from the time they were illegally dismissed/retrenched up to their actual reinstatements;
3. Pay moral and exemplary damages in the amount of Five Hundred Thousand Pesos (P500,000.00); and
4. Ten (10%) per cent of the total monetary award as and by way of attorneys fees.
Respondents appealed to the NLRC. Meanwhile, FASAP moved for the implementation of the reinstatement aspect of the Labor Arbiters decision. Despite respondents opposition, the Labor Arbiter issued a writ of execution with respect to the reinstatement directive in his decision. Respondents moved to quash the writ, but the Labor Arbiter denied the same. Again, respondents took issue with the NLRC.
WHEREFORE, premises considered, the Decision dated
With respect to complainant Ms. Begonia Blanco, her demotion is hereby declared illegal and respondent PAL is ordered to pay her salary differential covering the period from the time she was downgraded in July 1998 up to the time she resigned in October 1999.
Respondent PAL is likewise ordered to pay the separation benefits to those complainants who have not received their separation pay and to pay the balance to those who have received partial separation pay.
The Order of the Labor Arbiter dated
Annexes A and B are considered part of this Decision.
FASAP moved for reconsideration but it was denied; hence it filed an appeal to the Court of Appeals which was denied in the herein assailed Decision.
FASAPs motion for reconsideration was likewise denied; hence, the instant petition raising the following issues:
OR NOT THE COURT OF APPEALS DECIDED THE
FIRST, the record shows that PAL failed or neglected to adopt less drastic cost-cutting measures before resorting to retrenchment. No less than the Supreme Court held that resort to less drastic cost-cutting measures is an indispensable requirement for a valid retrenchment x x x.
SECOND, PAL arbitrarily and capriciously singled out the year 1997 as a reference in its alleged assessment of employee efficiency. With this, it totally disregarded the employees performance during the years prior to 1997. This resulted in the unreasonable and unfair retrenchment or demotion of several flight pursers and attendants who showed impeccable service records during the years prior to 1997.
THIRD, seniority was totally disregarded in the selection of employees to be retrenched, which is a clear and willful violation of the CBA.
FOURTH, PAL maliciously represented in the proceedings below that it could only operate on a fleet of fourteen (14) planes in order to justify the retrenchment scheme. Yet, the evidence on record revealed that PAL operated a fleet of twenty two (22) planes. In fact, after having illegally retrenched the unfortunate flight attendants and pursers, PAL rehired those who were capriciously dismissed and even hired from the outside just to fulfill their manning requirements.
FIFTH, PAL did not use any fair and reasonable criteria in effecting retrenchment. If there really was any, the same was applied arbitrarily, if not discriminatorily.
FINALLY, and perhaps the worst transgression of FASAPs rights, PAL used retrenchment to veil its union-busting motives and struck at the heart of FASAP when it retrenched seven (7) of its twelve (12) officers and demoted three (3) others. (Emphasis supplied)
These issues boil down to the question of whether PALs retrenchment scheme was justified.
It is a settled rule that in the exercise of the Supreme Courts power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during trial. However, there are several exceptions to this rule such as when the factual findings of the Labor Arbiter differ from those of the NLRC, as in the instant case, which opens the door to a review by this Court.
Under the Labor Code, retrenchment or reduction of employees is authorized as follows:
ART. 283. Closure of establishment and reduction of personnel. - The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
The law recognizes the right of every business entity to reduce its work force if the same is made necessary by compelling economic factors which would endanger its existence or stability. Where appropriate and where conditions are in accord with law and jurisprudence, the Court has authorized valid reductions in the work force to forestall business losses, the hemorrhaging of capital, or even to recognize an obvious reduction in the volume of business which has rendered certain employees redundant.
Nevertheless, while it is true that the exercise of this right is a prerogative of management, there must be faithful compliance with substantive and procedural requirements of the law and jurisprudence, for retrenchment strikes at the very heart of the workers employment, the lifeblood upon which he and his family owe their survival. Retrenchment is only a measure of last resort, when other less drastic means have been tried and found to be inadequate.
The burden clearly falls upon the employer to prove economic or business losses with sufficient supporting evidence. Its failure to prove these reverses or losses necessarily means that the employees dismissal was not justified. Any claim of actual or potential business losses must satisfy certain established standards, all of which must concur, before any reduction of personnel becomes legal. These are:
(1) That 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 (1) month pay or at least one-half () 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.
In view of the facts and the issues raised, the resolution of the instant petition hinges on a determination of the existence of the first, fourth and the fifth elements set forth above, as well as compliance therewith by PAL, taking to mind that the burden of proof in retrenchment cases lies with the employer in showing valid cause for dismissal; that legitimate business reasons exist to justify retrenchment.
FIRST ELEMENT: That 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.
The employers prerogative to layoff employees is subject to certain limitations. In Lopez Sugar Corporation v. Federation of Free Workers, we held that:
Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona fide nature of the retrenchment would appear to be seriously in question. Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs than labor costs. An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called golden parachutes, can scarcely claim to be retrenching in good faith to avoid losses. To impart operational meaning to the constitutional policy of providing full protection to labor, the employers prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means - e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc. - have been tried and found wanting.
Lastly, but certainly not the least important, alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence.
The law speaks of serious business losses or financial reverses. Sliding incomes or decreasing gross revenues are not necessarily losses, much less serious business losses within the meaning of the law. The fact that an employer may have sustained a net loss, such loss, per se, absent any other evidence on its impact on the business, nor on expected losses that would have been incurred had operations been continued, may not amount to serious business losses mentioned in the law. The employer must show that its losses increased through a period of time and that the condition of the company will not likely improve in the near future, or that it expected no abatement of its losses in the coming years. Put simply, not every loss incurred or expected to be incurred by a company will justify retrenchment.
The employer must also exhaust all other means to avoid further losses without retrenching its employees. Retrenchment is a means of last resort; it is justified only when all other less drastic means have been tried and found insufficient. Even assuming that the employer has actually incurred losses by reason of the Asian economic crisis, the retrenchment is not completely justified if there is no showing that the retrenchment was the last recourse resorted to. Where the only less drastic measure that the employer undertook was the rotation work scheme, or the three-day-work-per-employee-per-week schedule, and it did not endeavor at other measures, such as cost reduction, lesser investment on raw materials, adjustment of the work routine to avoid scheduled power failure, reduction of the bonuses and salaries of both management and rank-and-file, improvement of manufacturing efficiency, and trimming of marketing and advertising costs, the claim that retrenchment was done in good faith to avoid losses is belied.
Alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees; scheming employers might be merely feigning business losses or reverses in order to ease out employees.
In establishing a unilateral claim of actual or potential losses, financial statements audited by independent external auditors constitute the normal method of proof of profit and loss performance of a company. The condition of business losses justifying retrenchment is normally shown by audited financial documents like yearly balance sheets and profit and loss statements as well as annual income tax returns. Financial statements must be prepared and signed by independent auditors; otherwise, they may be assailed as self-serving. A Statement of Profit and Loss submitted to prove alleged losses, without the accompanying signature of a certified public accountant or audited by an independent auditor, is nothing but a self-serving document which ought to be treated as a mere scrap of paper devoid of any probative value.
The audited financial statements should be presented before the Labor Arbiter who is in the position to evaluate evidence. They may not be submitted belatedly with the Court of Appeals, because the admission of evidence is outside the sphere of the appellate courts certiorari jurisdiction. Neither can this Court admit in evidence audited financial statements, or make a ruling on the question of whether the employer incurred substantial losses justifying retrenchment on the basis thereof, as this Court is not a trier of facts. Even so, this Court may not be compelled to accept the contents of said documents blindly and without thinking.
The requirement of evidentiary substantiation dictates that not even the affidavit of the Assistant to the General Manager is admissible to prove losses, as the same is self-serving. Thus, in Central Azucarera de la Carlota v. National Labor Relations Commission, the Court ruled that the mere citation by the employer of the economic setback suffered by the sugar industry as a whole cannot, in the absence of adequate, credible and persuasive evidence, justify its retrenchment program, thus:
A litany of woes, from a labor strike way back in 1982 to the various crises endured by the sugar industry, droughts, the 1983 assassination of former Senator Benigno Aquino, Jr., high crop loan interests, spiraling prices of fertilizers and spare parts, the depression of sugar prices in the world market, cutback in the U.S. sugar quota, abandonment of productive areas because of the insurgency problem and the absence of fair and consistent government policies may have contributed to the unprecedented decline in sugar production in the country, but there is no solid evidence that they translated into specific and substantial losses that would necessitate retrenchment. Just exactly what negative effects were borne by petitioner as a result, petitioner failed to underscore.
In Anino v. National Labor Relations Commission, the Court also held that the employers claim that retrenchment was undertaken as a measure of self-preservation to prevent losses brought about by the continuing decline of nickel prices and export volume in the mining industry, as well as its allegation that the reduction of excise taxes on mining from 5% to 1% on a graduated basis as provided under Republic Act No. 7729 was a clear recognition by the government of the industrys worsening economic difficulties was a bare claim in the absence of evidence of actual losses in its business operations.
In the instant case, PAL failed to substantiate its claim of actual and imminent substantial losses which would justify the retrenchment of more than 1,400 of its cabin crew personnel. Although the Philippine economy was gravely affected by the Asian financial crisis, however, it cannot be assumed that it has likewise brought PAL to the brink of bankruptcy. Likewise, the fact that PAL underwent corporate rehabilitation does not automatically justify the retrenchment of its cabin crew personnel.
Records show that PAL was not even aware of its actual financial position when it implemented its retrenchment program. It initially decided to cut its fleet size to only 14 (Plan 14) and based on said plan, it retrenched more than 1,400 of its cabin crew personnel. Later on, however, it abandoned its Plan 14 and decided to retain 22 units of aircraft (Plan 22). Unfortunately, it has retrenched more than what was necessary. PAL admits that:
[U]pon reconsideration and with some optimistic prospects for operations, the Company (PAL) decided not to implement Plan 14 and instead implemented Plan 22, which would involve a fleet of 22 planes. Since Plan 14 was abandoned, the Company deemed it appropriate to recall back into employment employees it had previously retrenched. Thus, some of the employees who were initially laid off were recalled back to duty, the basis of which was passing the 1997 efficiency rating to meet the Companys operational requirements.
to adopt Plan 14 on
This only proves that PAL was not aware of the true state of its finances at the time it implemented the assailed massive retrenchment scheme. It embarked on the mass dismissal without first undertaking a well-considered study on the proposed retrenchment scheme. This view is underscored by the fact that previously, PAL terminated the services of 140 probationary cabin attendants, but rehired them almost immediately and even converted their employment into permanent and regular, even as a massive retrenchment was already looming in the horizon.
To prove that PAL was financially distressed, it could have submitted its audited financial statements but it failed to present the same with the Labor Arbiter. Instead, it narrated a litany of woes without offering any evidence to show that they translated into specific and substantial losses that would necessitate retrenchment, thus:
1. It is a matter of public knowledge that PAL had been suffering severe financial losses that reached its most critical condition in 1998 when its liabilities amounted to about P90,642,933,919.00, while its assets amounted to only about P85,109,075,351.00. The precarious situation prompted PAL to adopt cost-cutting measures to prevent it from becoming totally bankrupt, including the reduction of its flight fleet from 56 to 14 aircrafts and the retrenchment of unneeded employees.
x x x x
26. To save its business, PAL had every right to undergo a retrenchment program immediately. PAL did not need, by law, to justify or explain to FASAP the reasons for the retrenchment before it could implement it. Proof of actual financial losses incurred by the company is not a condition sine qua non for retrenchment.
This bare and unilateral claim does not suffice. The Labor Arbiters finding that PAL amply satisfied the rules imposed by law and jurisprudence that sustain retrenchment, is without basis, absent the presentation of documentary evidence to that effect. In Saballa v. National Labor Relations Commission, we ruled that where the decision of the Labor Arbiter did not indicate the specific bases for such crucial finding that the employer was suffering business reverses, the same was arbitrary. We ratiocinated therein that since the employer insisted that its critical financial condition was the central and pivotal reason for its retrenchment, there was no reason why it should have neglected or refused to submit its audited financial statements.
PALs assertion that its finances were gravely compromised as a result of the 1997 Asian financial crisis and the pilots strike lacks basis due to the non-presentation of its audited financial statements to prove actual or imminent losses. Also, the fact that PAL was placed under receivership did not excuse it from submitting to the labor authorities copies of its audited financial statements to prove the urgency, necessity and extent, of its retrenchment program. PAL should have presented its audited financial statements for the years immediately preceding and during which the retrenchment was carried out. Law and jurisprudence require that alleged losses or expected imminent losses must be proved by sufficient and convincing evidence.
Likewise, PAL has not shown to the Courts satisfaction that the pilots strike had gravely affected its operations. It offered no proof to show the correlation between the pilots strike and its alleged financial difficulties. In Guerrero v. National Labor Relations Commission, the Court held that where the employer failed to prove its claim with competent evidence that the employees strike paralyzed its operations and resulted in the withdrawal of its clients orders, the retrenchment of its employees must be declared illegal.
Moreover, as the Court ruled in the case of EMCO Plywood Corporation, it must be shown that the employer resorted to other means but these proved to be insufficient or inadequate, such as cost reduction, lesser investment on raw materials, adjustment of the work routine to avoid scheduled power failure, reduction of the bonuses and salaries of both management and rank-and-file, improvement of manufacturing efficiency, and trimming of marketing and advertising costs. In the instant case, there is no proof that PAL engaged in cost-cutting measures other than a mere reduction in its fleet of aircraft and the retrenchment of 5,000 of its personnel.
The only manifestation of PALs attempt at exhausting other possible measures besides retrenchment was when it conducted negotiations and consultations with FASAP which, however, ended nowhere. None of the plans and suggestions taken up during the meetings was implemented. On the other hand, PALs September 4, 1998 offer of shares of stock to its employees was adopted belatedly, or only after its more than 1,400 cabin crew personnel were retrenched. Besides, this offer can hardly be considered to be borne of good faith, considering that it was premised on the condition that, if accepted, all existing CBAs between PAL and its employees would have to be suspended for 10 years. When the offer was rejected by the employees, PAL ceased its operations on September 23, 1998. It only resumed business when the CBA suspension clause was ratified by the employees in a referendum subsequently conducted. Moreover, this stock distribution scheme does not do away with PALs expenditures or liabilities, since it has for its sole consideration the commitment to suspend CBAs with its employees for 10 years. It did not improve the financial standing of PAL, nor did it result in corporate savings, vis--vis the financial difficulties it was suffering at the time.
Also, the claim that PAL saved P24 million monthly due to the implementation of the retrenchment program does not prove anything; it has not been shown to what extent or degree such savings benefited PAL, vis--vis its total expenditures or its overall financial position. Likewise, its claim that its liabilities reached P90 billion, while its assets amounted to P85 billion only or a debt to asset ratio of more than 1:1 may not readily be believed, considering that it did not submit its audited financial statements. All these allegations are self-serving evidence.
Interestingly, PAL submitted its audited financial statements only when the case was the subject of certiorari proceedings in the Court of Appeals by attaching in its Comment a copy of its consolidated audited financial statements for the years 2002, 2003 and 2004. However, these are not the financial statements that would have shown PALs alleged precarious position at the time it implemented the massive retrenchment scheme in 1998. PAL should have submitted its financial statements for the years 1997 up to 1999; and not for the years 2002 up to 2004 because these financial statements cover a period markedly distant to the years in question, which make them irrelevant and unacceptable.
Neither could PAL claim to suffer from imminent or resultant losses had it not implemented the retrenchment scheme in 1998. It could not have proved that retrenchment was necessary to prevent further losses, because immediately thereafter or in February 1999 PAL was on the road to recovery; this is the airlines bare admission in its Comment to the instant petition. During that period, it was recalling to duty cabin crew it had previously retrenched. In March 2000, PAL declared a net income of P44.2 million. In March 2001, it reported a profit of P419 million. In March 2003, it again registered a net income of P295 million. All these facts are anathema to a finding of financial difficulties.
Finally, what further belied PALs allegation that it was suffering from substantial actual and imminent losses was the fact that in December 1998, PAL submitted a stand-alone rehabilitation plan to the SEC, and on June 4, 1999, or less than a year after the retrenchment, the amount of US$200 million was invested directly into PAL by way of additional capital infusion for its operations. These facts betray PALs claim that it was in dire financial straits. By submitting a stand-alone rehabilitation plan, PAL acknowledged that it could undertake recovery on its own and that it possessed enough resources to weather the financial storm, if any.
Thus said, it was grave error for the Labor Arbiter, the NLRC and the Court of Appeals, to have simply assumed that PAL was in grievous financial state, without requiring the latter to substantiate such claim. It bears stressing that in retrenchment cases, the presentation of proof of financial difficulties through the required documents, preferably audited financial statements prepared by independent auditors, may not summarily be done away with.
That FASAP admitted and took for granted the existence of PALs financial woes cannot excuse the latter from proving to the Courts satisfaction that indeed it was bleeding financially. It was the airlines obligation to prove that it was in such financial distress; that it was necessary to implement an appropriate retrenchment scheme; that it had to undergo a retrenchment program in proportion to or commensurate with the extent of its financial distress; and that, it was carrying out the scheme in good faith and without undermining the security of tenure of its employees. The Court is mindful that the characterization of an employees services as no longer necessary or sustainable, and therefore, properly terminable, is an exercise of business judgment on the part of the employer, and that the wisdom or soundness of such characterization or decision is not subject to discretionary review, provided of course that violation of law or arbitrary or malicious action is not shown.
The foregoing principle holds true with respect to PALs claim in its Comment that the only issue is the manner by which its retrenchment scheme was carried out because the validity of the scheme has been settled in its favor. Respondents might have confused the right to retrench with its actual retrenchment program, treating them as one and the same. The first, no doubt, is a valid prerogative of management; it is a right that exists for all employers. As to the second, it is always subject to scrutiny in regard to faithful compliance with substantive and procedural requirements which the law and jurisprudence have laid down. The right of an employer to dismiss an employee differs from and should not be confused with the manner in which such right is exercised.
FOURTH ELEMENT: 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.
Concededly, retrenchment to prevent losses is an authorized cause for terminating employment and the decision whether to resort to such move or not is a management prerogative. However, the right of an employer to dismiss an employee differs from and should not be confused with the manner in which such right is exercised. It must not be oppressive and abusive since it affects one's person and property.
In Indino v. National Labor Relations Commission, the Court held that it is almost an inflexible rule that employers who contemplate terminating the services of their workers cannot be so arbitrary and ruthless as to find flimsy excuses for their decisions. This must be so considering that the dismissal of an employee from work involves not only the loss of his position but more important, his means of livelihood. Applying this caveat, it is therefore incumbent for the employer, before putting into effect any retrenchment process on its work force, to show by convincing evidence that it was being wrecked by serious financial problems. Simply declaring its state of insolvency or its impending doom will not be sufficient. To do so would render the security of tenure of workers and employees illusory. Any employer desirous of ridding itself of its employees could then easily do so without need to adduce proof in support of its action. We can not countenance this. Security of tenure is a right guaranteed to employees and workers by the Constitution and should not be denied on the basis of mere speculation.
On the requirement that the prerogative to retrench must be exercised in good faith, we have ruled that the hiring of new employees and subsequent rehiring of retrenched employees constitute bad faith; that the failure of the employer to resort to other less drastic measures than retrenchment seriously belies its claim that retrenchment was done in good faith to avoid losses; and that the demonstrated arbitrariness in the selection of which of its employees to retrench is further proof of the illegality of the employers retrenchment program, not to mention its bad faith.
When PAL implemented Plan 22, instead of Plan 14, which was what it had originally made known to its employees, it could not be said that it acted in a manner compatible with good faith. It offered no satisfactory explanation why it abandoned Plan 14; instead, it justified its actions of subsequently recalling to duty retrenched employees by making it appear that it was a show of good faith; that it was due to its good corporate nature that the decision to consider recalling employees was made. The truth, however, is that it was unfair for PAL to have made such a move; it was capricious and arbitrary, considering that several thousand employees who had long been working for PAL had lost their jobs, only to be recalled but assigned to lower positions (i.e., demoted), and, worse, some as new hires, without due regard for their long years of service with the airline.
The irregularity of PALs implementation of Plan 14 becomes more apparent when it rehired 140 probationary cabin attendants whose services it had previously terminated, and yet proceeded to terminate the services of its permanent cabin crew personnel.
In sum, we find that PAL had implemented its retrenchment program in an arbitrary manner and with evident bad faith, which prejudiced the tenurial rights of the cabin crew personnel.
Moreover, the managements September 4, 1998 offer to transfer PAL shares of stock in the name of its employees in exchange for the latters commitment to suspend all existing CBAs for 10 years; the closure of its operations when the offer was rejected; and the resumption of its business after the employees relented; all indicate that PAL had not acted in earnest in regard to relations with its employees at the time.
FIFTH ELEMENT: 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.
In selecting employees to be dismissed, fair and reasonable criteria must be used, such as but not limited to: (a) less preferred status (e.g., temporary employee), (b) efficiency and (c) seniority.
In Villena v. National Labor Relations Commission, the Court considered seniority an important aspect for the validity of a retrenchment program. In Philippine Tuberculosis Society, Inc. v. National Labor Union, the Court held that the implementation of a retrenchment scheme without taking seniority into account rendered the retrenchment invalid, even as against factors such as dependability, adaptability, trainability, job performance, discipline, and attitude towards work.
In the implementation of its retrenchment scheme, PAL evaluated the cabin crew personnels performance during the year preceding the retrenchment (1997), based on the following set of criteria or rating variables found in the Performance Evaluation Form of the cabin crew personnels Grooming and Appearance Handbook:
A. INFLIGHT PROFICIENCY EVALUATION 30%
B. JOB PERFORMANCE 35%
Special Award +5
Disciplinary Actions Reminder (-3), Warning/Admonition & Reprimands (-5), Suspension (-20), Passenger Complaints (-30), Appearance (-10)
C. ATTENDANCE 35%
Perfect Attendance +2
Missed Assignment -30
Sick Leaves in excess of allotment and other leaves in excess of allotment -20
Tardiness -10 
The appellate court held that there was no need for PAL to consult with FASAP regarding standards or criteria that the airline would utilize in the implementation of the retrenchment program; and that the criteria actually used which was unilaterally formulated by PAL using its Performance Evaluation Form in its Grooming and Appearance Handbook was reasonable and fair. Indeed, PAL was not obligated to consult FASAP regarding the standards it would use in evaluating the performance of the each cabin crew. However, we do not agree with the findings of the appellate court that the criteria utilized by PAL in the actual retrenchment were reasonable and fair.
This Court has repeatedly enjoined employers to adopt and observe fair and reasonable standards to effect retrenchment. This is of paramount importance because an employers retrenchment program could be easily justified considering the subjective nature of this requirement. The adoption and implementation of unfair and unreasonable criteria could not easily be detected especially in the retrenchment of large numbers of employees, and in this aspect, abuse is a very distinct and real possibility. This is where labor tribunals should exercise more diligence; this aspect is where they should concentrate when placed in a position of having to judge an employers retrenchment program.
Indeed, the NLRC made a detailed listing of the retrenchment scheme based on the ICCD Masterank and Seniority 1997 Ratings. It found the following:
1. Number of employees retrenched due to inverse seniority rule and other reasons -- 454
2. Number of employees retrenched due to excess sick leaves -- 299
3. Number of employees who were retrenched due to excess sick leave and other reasons -- 61
4. Number of employees who were retrenched due to other reasons -- 107
5. Number of employees who were demoted -- 552
Total -- 1,473.
Prominent from the above data is the retrenchment of cabin crew personnel due to other reasons which, however, are not specifically stated and shown to be for a valid cause. This is not allowed because it has no basis in fact and in law.
Moreover, in assessing the overall performance of each cabin crew personnel, PAL only considered the year 1997. This makes the evaluation of each cabin attendants efficiency rating capricious and prejudicial to PAL employees covered by it. By discarding the cabin crew personnels previous years of service and taking into consideration only one years worth of job performance for evaluation, PAL virtually did away with the concept of seniority, loyalty and past efficiency, and treated all cabin attendants as if they were on equal footing, with no one more senior than the other.
In sum, PALs retrenchment program is illegal because it was based on wrongful premise (Plan 14, which in reality turned out to be Plan 22, resulting in retrenchment of more cabin attendants than was necessary) and in a set of criteria or rating variables that is unfair and unreasonable when implemented. It failed to take into account each cabin attendants respective service record, thereby disregarding seniority and loyalty in the evaluation of overall employee performance.
Anent the claim of unfair labor practices committed against petitioner, we find the same to be without basis. Article 261 of the Labor Code provides that violations of a CBA, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the parties CBA. Moreover, gross violations of CBA under the same Article referred to flagrant and/or malicious refusal to comply with the economic provisions of such agreement, which is not the issue in the instant case.
Also, we fail to see any specific instance of union busting, oppression or harassment and similar acts of FASAPs officers. The fact that majority of FASAPs officers were either retrenched or demoted does not prove restraint or coercion in their right to organize. Instead, we see a simple retrenchment scheme gone wrong for failure to abide by the stringent rules prescribed by law, and a failure to discharge the employers burden of proof in such cases.
Quitclaims executed as a result of PALs illegal retrenchment program are likewise annulled and set aside because they were not voluntarily entered into by the retrenched employees; their consent was obtained by fraud or mistake, as volition was clouded by a retrenchment program that was, at its inception, made without basis. The law looks with disfavor upon quitclaims and releases by employees pressured into signing by unscrupulous employers minded to evade legal responsibilities. As a rule, deeds of release or quitclaim cannot bar employees from demanding benefits to which they are legally entitled or from contesting the legality of their dismissal. The acceptance of those benefits would not amount to estoppel. The amounts already received by the retrenched employees as consideration for signing the quitclaims should, however, be deducted from their respective monetary awards.
In Trendline Employees Association-Southern Philippines Federation of Labor v. NLRC, we held that where the employer led its employees to believe that the employer was suffering losses and as a result thereof accept retrenchment by executing quitclaims and waivers, there was evident bad faith on the part of the employer justifying the setting aside of the quitclaims and waivers executed.
As to PALs recall and rehire process (of retrenched cabin crew employees), the same is likewise defective. Considering the illegality of the retrenchment, it follows that the subsequent recall and rehire process is likewise invalid and without effect.
A corporate officer is not personally liable for the money claims of discharged corporate employees unless he acted with evident malice and bad faith in terminating their employment. We do not see how respondent Patria Chiong may be held personally liable together with PAL, it appearing that she was merely acting in accordance with what her duties required under the circumstances. Being an Assistant Vice President for Cabin Services of PAL, she takes direct orders from superiors, or those who are charged with the formulation of the policies to be implemented.
With respect to moral damages, we have time and again held that as a general rule, a corporation cannot suffer nor be entitled to moral damages. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by an artificial, juridical person. The Labor Arbiters award of moral damages was therefore improper.
WHEREFORE, the instant petition is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 87956 dated August 23, 2006, which affirmed the Decision of the NLRC setting aside the Labor Arbiters findings of illegal retrenchment and its Resolution of May 29, 2007 denying the motion for reconsideration, are REVERSED and SET ASIDE and a new one is rendered:
1. FINDING respondent Philippine Airlines, Inc. GUILTY of illegal dismissal;
2. ORDERING Philippine Air Lines, Inc. to reinstate the cabin crew personnel who were covered by the retrenchment and demotion scheme of June 15, 1998 made effective on July 15, 1998, without loss of seniority rights and other privileges, and to pay them full backwages, inclusive of allowances and other monetary benefits computed from the time of their separation up to the time of their actual reinstatement, provided that with respect to those who had received their respective separation pay, the amounts of payments shall be deducted from their backwages. Where reinstatement is no longer feasible because the positions previously held no longer exist, respondent Corporation shall pay backwages plus, in lieu of reinstatement, separation pay equal to one (1) month pay for every year of service;
3. ORDERING Philippine Airlines, Inc. to pay attorneys fees equivalent to ten percent (10%) of the total monetary award.
Costs against respondent PAL.
MA. ALICIA AUSTRIA-MARTINEZ
MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
TERESITA J. LEONARDO-DE CASTRO
I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
Chairperson, Third Division
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
* Designated in lieu of Associate Justice Ruben T. Reyes.
 Rollo, pp. 59-83; penned by Associate Justice Ruben T. Reyes (now Associate Justice of this Court) and concurred in by Associate Justices Juan Q. Enriquez, Jr. and Vicente S.E. Veloso.
Entered into on
In the event of redundancy, phase-out of equipment or reduction of operations, the following rules in the reduction of personnel shall apply:
A. Reduction in the number of Pursers:
1. In the event of a reduction of purser OCARs, pursers who have not attained an efficiency rating of 85% shall be downgraded to international Cabin Attendant in the reverse order of seniority.
2. If the reduction of purser OCARs would involve more than the number of pursers who have not attained an efficiency rating of 85%, then pursers who have attained an efficiency rating of 85% shall be downgraded to international Cabin Attendant in the inverse order of seniority.
B. In reducing the number of international Cabin Attendants due to reduction in international Cabin Attendant OCARs, the same process in paragraph A shall be observed. International Cabin Attendants shall be downgraded to domestic.
C. In the event of reduction of domestic OCARs thereby necessitating the retrenchment of personnel, the same process shall be observed.
D. In no case, however, shall a regular Cabin Attendant be separated from the service in the event of retrenchment until all probationary or contractual Cabin Attendant in the entire Cabin Attendants Corps, in that order, shall have been retrenched.
E. Regular Cabin Attendants whose services are terminated due to reduction in force shall receive the benefits of the Retirement Plan provided hereunder or such separation pay as may be required under the Labor Code, whichever is the greater amount.
F. VOLUNTARY DOWNGRADING The Company shall grant the Cabin Attendants the option to revert back to a lower position provided they agree to be considered the most junior among the group. This consideration shall be for the sole purpose of re-upgrading. (Emphasis supplied)
 The evaluation is contained in the 1997 ICCD Masterank and Seniority Listings prepared by PAL, which lists the names of all cabin crew personnel; their respective seniority numbers (1-1,733); their respective efficiency ratings or ranking for the year 1997 only (85% is the passing grade or rate); whether they are retained, downgraded or retrenched; and the reasons for their retrenchment, if so. Rollo, pp. 1085-1140.
The said Masterank and Seniority Listings was belatedly submitted by PAL to the Labor Arbiter only in March 2000, when it filed its Supplemental Memorandum.
 Rollo, pp. 79-80; Decision of the Third Division of the NLRC.
 See Rivera v. Espiritu, 425 Phil. 169 (2002).
 Rollo, pp. 913; Respondents Comment to the FASAP Petition for Certiorari filed with the Court of Appeals.
 Philippine Airlines, Incorporated v.
Philippine Airlines Association (PALEA), G.R. No. 142399,
 Rollo, pp. 1259-1261.
 438 Phil. 375 (2002). Therein we upheld a stay of claims against PAL, which runs effective from the date of issuance of a stay order (under Sec. 6, Rule 4 of the Interim Rules of Procedure On Corporate Rehabilitation) until the dismissal of the petition for rehabilitation or termination of rehabilitation proceedings.
 Docketed as FASAP v. Philippine Airlines & Chiong, NLRC-NCR Case No. 06-05100-98; rollo, p. 87.
 Then the Assistant Vice President for Cabin Services of PAL.
 Rollo, p. 487.
 Mamsar Enterprises Agro-Industrial Corporation v. Varley Trading, Inc., G.R. No. 142729, November 29, 2005, 476 SCRA 378, 382; The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 85-86.
 Perez v. Medical City General Hospital, G.R. No. 150198, March 6, 2006, 484 SCRA 138, 142.
 Uichico v. National Labor Relations
Commission, G.R. No. 121434,
 Polymart Paper Industries, Inc. v. National Labor Relations Commission, 355 Phil. 592, 602 (1998).
 F.F. Marine Corporation v. National Labor Relations Commission, G.R. No. 152039, April 8, 2005, 455 SCRA 154, 166-167.
 Uichico v. National Labor Relations Commission, supra note 40 at 43.
 Casimiro v. Stern Real Estate Inc., G.R. No. 162233, March 10, 2006, 484 SCRA 463; Philippine Carpet Employees Association v. Sto. Tomas, G.R. No. 168719, February 22, 2006, 483 SCRA 128; Ariola v. Philex Mining Corp., G.R. No. 147756, August 9, 2005, 466 SCRA 152; Danzas Intercontinental, Inc. v. Daguman, G.R. No. 154368, April 15, 2005, 456 SCRA 382.
 Banana Growers Collective at Puyod Farms v. National Labor Relations Commission, 342 Phil. 511, 523 (1997).
 Polymart Paper Industries, Inc. v. National Labor Relations Commission, supra note 42.
G.R. Nos. 75700-01,
 Philippine Carpet Employees Association v. Sto. Tomas, supra note 45 at 145.
 Oriental Petroleum and Minerals Corp. v. Fuentes, G.R. No. 151818, October 14, 2005, 473 SCRA 106, 116.
 Polymart Paper Industries, Inc. v. National Labor Relations Commission, supra note 42 at 600, 602.
 F.F. Marine Corporation v. National Labor Relations Commission, supra note 43 at 171.
 TPI Philippines Cement Corporation v.
 Danzas Intercontinental, Inc. v. Daguman, supra note 45 at 393.
 Uichico v. National Labor Relations Commission, supra note 40 at 45.
 Danzas Intercontinental, Inc. v. Daguman, supra note 45 at 394-395.
 Philippine Tobacco Flue-Curing & Redrying Corporation v. National Labor Relations Commission, 360 Phil. 218, 238 (1998).
 Polymart Paper Industries, Inc. v. National Labor Relations Commission, supra note 42 at 602.
G.R. No. 100092,
 352 Phil. 1098 (1998).
 Rollo, p. 913; Respondents Comment to the FASAP Petition for Certiorari filed with the Court of Appeals.
 329 Phil. 511, 523-524 (1996).
 Supra note 56.
 Supra note 55.
 Rivera v. Espiritu, supra note 13.
 Rollo, p. 912.
 Only seven (7) months after the questioned retrenchment was implemented.
 Rollo, p. 1395. Therein, PAL admits that
During this time, the Company was slowly but steadily recovering. Its finances were improving and additional planes were flying. Because of the Companys steady recovery, necessity dictated more employees to man and service the additional planes and flights. Thus, instead of taking in new hires, the Company first offered employment to employees who were previously retrenched. A recall/rehire plan was initiated.
 See footnote 21.
SEC Order of
 Becton Dickinson Phils., Inc. v. National Labor Relations Commission, G.R. Nos. 159969 & 160116, November 15, 2005, 475 SCRA 123, 144.
 Rollo, pp. 1403-1404.
 Remerco Garments Manufacturing v. Minister
of Labor and Employment, G.R. Nos. L-56176-77,
 AHS/Philippines Employees
G.R. No. 80352,
 Philippine Carpet Employees Association v. Sto. Tomas, supra note 45.
 Saballa v. National Labor Relations Commission, supra note 71.
 Fernandez, P.V., The Law of Employee Dismissal, pp. 130-131, 1976 Ed.; Asiaworld Publishing House, Inc. v. Ople, G.R. No. L-56398, July 23, 1987, 152 SCRA 219, 225; Asufrin, Jr. v. San Miguel Corporation, G.R. No. 156658, March 10, 2004, 425 SCRA 270, 275.
G.R. No. 90664,
 356 Phil. 63, 73 (1998).
 Rollo, p. 924.
 Decision of the NLRC; rollo, p. 686.
 F.F. Marine Corporation v. National Labor Relations Commission, supra note 43.
 338 Phil. 681 (1997).
 Midas Touch Food Corporation v. National Labor Relations Commission, 328 Phil. 1033, 1045 (1996).