FACTS:

The case involves thirty-eight regular employees of GTI Sportswear Corporation (GTI) who were given "temporary lay-off" notices due to alleged lack of work and heavy losses. The employees claimed that they were laid off because of their union activities, in violation of their right to security of tenure. They filed complaints for illegal dismissal, unfair labor practice, underpayment of wages, and non-payment of overtime pay and 13th month pay.

GTI denied the claim of illegal dismissal and justified the temporary lay-off as a measure to prevent losses. It argued that the subsequent cancellation of job orders prevented the recall of the employees. Out of the 38 complainants, 22 accepted the separation pay offered by GTI, while the petitioners did not.

The Labor Arbiter found GTI liable for constructive dismissal, underpayment of wages, and 13th-month pay differentials. The NLRC modified the decision by setting aside the award of back wages, proportionate 13th month pay for 1991, and attorney's fees.

During the trial, it was proven that the lack of work and the need for personnel selection continued. Due to the strained relations between the parties, reinstatement of the complainants was not considered prudent. As a result, the Labor Arbiter awarded separation pay to the complainants. The respondent failed to disprove the complaints regarding underpayment of wages, and as a result, the Labor Arbiter found the respondent liable.

The complainants were also awarded reasonable attorney's fees. However, the Labor Arbiter did not find sufficient evidence to support the charges of unfair labor practice, overtime pay, and moral and exemplary damages. The NLRC concurred with the Labor Arbiter regarding the valid lay-off but disagreed with the award of back wages after July 22, 1991, justifying that the lack of work justified retrenchment and not constructive dismissal. The NLRC modified the decision, deleting the award of back wages, proportionate 13th month pay for 1991, and attorney's fees. The complainants then filed a special civil action for certiorari before the court.

ISSUES:

1. Whether there was a valid and legal reduction of business and the theory of redundancy was properly sustained by the NLRC in justifying the dismissal of the petitioners.

2. Whether the NLRC failed to apply in full the provisions of law and jurisprudence as to the full payment of back wages in cases of illegal dismissal.

3. Whether the NLRC erred in deleting the award of attorney's fees.

4. Whether the employer complied with the requisite notice to the employees and the Department of Labor and Employment (DOLE) prior to retrenchment.

5. Whether the employer complied with the requirement of payment of separation pay.

6. Whether the employer should be sanctioned for its failure to serve required notices of retrenchment.

7. Whether the award of 13th-month pay should be reinstated.

8. Whether the award of attorney's fees should be reduced.

9. Whether the petitioners are entitled to indemnification for the employer's failure to observe due process.

RULING:

1. The petitioners' contention is based on a wrong premise. The NLRC did not sustain redundancy, but retrenchment as a ground for termination of employment. Redundancy and retrenchment are distinct and separate grounds under Article 283 of the Labor Code. The Court recognized that retrenchment is a legitimate act of the employer to dismiss employees during periods of business recession, lack of work, or considerable reduction in the volume of business. Therefore, the NLRC acted within its jurisdiction in ruling that there was a valid and legal reduction of business and in sustaining the theory of retrenchment.

2. The Court found that the NLRC correctly applied Article 286 of the Labor Code, which allows for a bona fide suspension of the operation of a business or undertaking for a period not exceeding six months without terminating employment. The temporary layoff or retrenchment should not last longer than six months. If the employees are not recalled to work or permanently retrenched after six months, it would be tantamount to dismissing the employees, making the employer liable for such dismissal. Therefore, the NLRC did not fail to apply the provisions of law and jurisprudence as to the full payment of back wages in cases of illegal dismissal.

3. The Court agreed with the NLRC in deleting the award of attorney's fees. It found that there was no legal basis for such an award.

4. The employer failed to comply with the requisite notice to the employees and the DOLE. While the employees were given notice of temporary lay-off, there was no evidence of a written notice of permanent retrenchment given at least one month prior to the intended date of retrenchment. Additionally, there was no evidence that a written notice was given to the DOLE as required by law.

5. The employer offered to give the employees their separation pay, but the offer was rejected by the employees. However, even without this offer, the retrenchment of the employees is still defective due to the lack of the required notices.

6. The employer must be sanctioned and required to indemnify each petitioner the sum of P2,000.00 for its failure to serve required notices of retrenchment.

7. The award of 13th-month pay should be reinstated as there is no legal basis to support the deletion of this award by the NLRC.

8. The award of attorney's fees should be reduced to P25,000.00, considering that the amount provided for in the Labor Code is the maximum, and any amount less than that may be awarded based on the circumstances of the case.

9. The petitioners are entitled to indemnification for the employer's failure to observe due process, and the sum of P2,000.00 for each petitioner is deemed just and reasonable under the circumstances.

PRINCIPLES:

• Retrenchment is the termination of employment initiated by the employer through no fault of the employee's and without prejudice to the latter. It is a legitimate act of the employer to dismiss employees during periods of business recession, lack of work, or considerable reduction in the volume of business.

• Redundancy exists when the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. It may be the outcome of factors such as overhiring of workers, decreased volume of business, or dropping of a particular product line or service activity by the enterprise.

• Article 283 of the Labor Code covers retrenchment and provides for the requisites and entitlements in case of termination due to retrenchment.

• Article 286 of the Labor Code allows for a bona fide suspension of the operation of a business or undertaking for a period not exceeding six months without terminating employment. The temporary layoff or retrenchment should not last longer than six months. After six months, the employees should either be recalled to work or permanently retrenched, and failure to comply would be considered as dismissal, making the employer liable.

• Retrenchment in accordance with the Labor Code requires compliance with three basic requisites: necessity to prevent losses, written notice to the employees and the DOLE, and payment of separation pay. (Article 283, Labor Code)

• Findings of quasi-judicial agencies in labor cases, when supported by substantial evidence, are accorded respect and finality by the courts.

• The lack of written notice to the employees and the DOLE may render retrenchment defective, but does not automatically make it illegal. The validity of the cause for retrenchment must still be proven.

• When an employee's dismissal is for a just and valid cause but due process was violated, the dismissal shall be upheld but the employer will be sanctioned for non-compliance with due process requirements. The penalty depends on the gravity of the employer's omission.

• Employers must comply with the requirements of procedural due process, including serving required notices of retrenchment.

• Employees are entitled to 13th-month pay, unless there is legal basis to support its deletion.

• Attorney's fees must be reasonable and may be awarded in accordance with Article 2208 of the Civil Code.

• Indemnification may be granted to employees for the employer's failure to observe due process.