FACTS:

This case involves a petition for certiorari filed by Lopez Sugar Corporation seeking the reversal of the decision of the National Labor Relations Commission (NLRC) which affirmed the decision of the Labor Arbiter. The Labor Arbiter denied the petitioner's application to retrench some of its employees and ordered the reinstatement of twenty-seven employees and the payment of full backwages.

The retrenchment and retirement of employees were done by the petitioner to prevent losses due to major economic problems. The petitioner filed a report on retirement and an application for clearance to retrench with the Ministry of Labor and Employment. The Federation of Free Workers (FFW), as the certified bargaining agent of the rank-and-file employees, filed a complaint for unfair labor practices and recovery of union dues.

The FFW claimed that the terminations undertaken by the petitioner were violative of the security of tenure and were intended to "bust" the union. The petitioner denied having hired casuals to replace the retired or retrenched employees. The petitioner explained that the announcement calling for 110 workers to report to its personnel office was only for the purpose of organizing a pool of extra workers.

The petitioner argued that certain economic factors jeopardized its existence and made the dismissals necessary. The NLRC affirmed the Labor Arbiter's decision, prompting the petitioner to file a Petition for Certiorari. The petitioner argues that portions of the decision of the NLRC affirming the decision of the Labor Arbiter are contrary to law and jurisprudence, not supported by evidence, and rendered with grave abuse of discretion and in excess of jurisdiction. The petitioner contends that the NLRC committed grave abuse of discretion in denying its combined report on retirement and application for clearance to retrench.

The petitioner asserts that it has the right to reduce its workforce if necessary due to economic factors that would endanger its existence, and it is not required for actual losses to be sustained for retrenchment to be valid. The Solicitor General argues that the decision of the Labor Arbiter and the NLRC is supported by substantial evidence. The court examines Article 283 of the Labor Code, which allows for termination of employment due to retrenchment to prevent losses, and determines that retrenchment can be undertaken before the anticipated losses are actually sustained.

The court establishes the general standards for the legitimacy of retrenchment, stating that the losses expected should be substantial and not de minimis, must be reasonably imminent, and the retrenchment must be reasonably necessary and likely to prevent the expected losses.

ISSUES:

1. Whether the losses expected by the employer were substantial and not merely de minimis in extent.

2. Whether the substantial loss apprehended was reasonably imminent.

3. Whether the retrenchment was reasonably necessary and likely to effectively prevent the expected losses.

4. Whether the alleged losses, if already realized, and the expected imminent losses sought to be forestalled, were proved by sufficient and convincing evidence.

5. Whether the petitioner submitted financial statements audited by independent external auditors.

6. Whether the petitioner specified the cost-reduction measures undertaken before resorting to retrenchment.

7. Whether the retirements effected by the petitioner were valid after the expiration of the collective bargaining agreement (CBA).

8. Whether the quitclaims signed by several workers bar them from joining in the complaint.

9. Whether the execution of quitclaims and/or complete releases by the retrenched employees are against public policy and thus null and void.

10. Whether the acceptance of termination pay by the retrenched employees divests them of the right to prosecute the employer for unfair labor practice acts.

11. Whether reinstatement and backwages should be granted to the retrenched employees.

12. Whether retirement of certain employees pursuant to the applicable provisions of the CBA is valid.

RULING:

1. The Supreme Court held that if the loss purportedly sought to be forestalled by retrenchment is insubstantial and inconsequential, the bonafide nature of the retrenchment may be seriously questioned.

2. The substantial loss apprehended must be reasonably imminent, and objectively and in good faith perceived by the employer.

3. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, such as cutting other costs than labor costs.

4. Alleged and expected losses must be proved by sufficient and convincing evidence, in order to prevent the abuse of the ground for termination.

5. The petitioner failed to submit financial statements audited by independent external auditors, which are the normal method of proof of a company's profit and loss performance. The failure to submit such statements is questionable.

6. The petitioner did not specify the cost-reduction measures undertaken in good faith before resorting to retrenchment. The lower courts did not find the petitioner's explanation credible, and there was no evidence to show that they were arbitrary or capricious in their evaluation.

7. The retirements effected by the petitioner were valid even after the expiration of the CBA. Article 253 of the Labor Code provides that a CBA continues to have legal effects until a new CBA is negotiated and entered into. As the employees continued to receive benefits and exercise prerogatives under the expired CBA, they cannot now deny its extended effectivity.

8. The quitclaims signed by the workers do not bar them from pursuing their claims arising from the unfair labor practice of the employer. Quitclaims executed by employees are generally ineffective to bar claims for the full measure of their legal rights.

9. The execution of quitclaims and/or complete releases by the retrenched employees is against public policy and thus null and void.

10. The acceptance of termination pay by the retrenched employees does not divest them of the right to prosecute the employer for unfair labor practice acts.

11. All retrenched employees should be reinstated and back wages should be paid to them corresponding to a period of three (3) years without qualification or deduction. For employees who received payments and executed quitclaims, the amount of such payments shall be deducted from their backwages. If reinstatement is no longer possible, separation pay in the amount of one month's salary for every year of service, including the three (3) year period, shall be awarded in lieu of reinstatement.

12. The retirement of employees who were retired pursuant to the applicable provisions of the CBA is valid.

PRINCIPLES:

• Retrenchment must be a measure of last resort, exercised when less drastic means have been tried and found wanting.

• Expected losses must be substantial and reasonably imminent.

• Retrenchment must be reasonably necessary and likely to effectively prevent the expected losses.

• Alleged losses must be proved by sufficient and convincing evidence.

• The factual findings of labor administrative officials, if supported by substantial evidence, are entitled to great respect and finality, unless there is evidence of arbitrary disregard or misapprehension of evidence.

• Financial statements audited by independent external auditors serve as the normal method of proof of a company's profit and loss performance.

• Employers must specify the cost-reduction measures undertaken in good faith before resorting to retrenchment.

• A CBA continues to have legal effects until a new CBA is negotiated and entered into.

• Quitclaims executed by employees do not estop them from pursuing claims arising from unfair labor practices.

• Quitclaims and/or complete releases arising from unfair labor practices are against public policy and are thus null and void.

• The acceptance of termination pay does not divest an employee of the right to prosecute the employer for unfair labor practice acts.

• Retrenched employees should be reinstated and paid backwages corresponding to a period of three (3) years without qualification or deduction.

• If reinstatement is no longer possible, separation pay in the amount of one month's pay for every year of service, including the three (3) year period, shall be awarded.

• Retirement of employees pursuant to the applicable provisions of the CBA is valid.