FACTS:

Separate Complaints were filed by the petitioners, who were employees of respondent, alleging illegal dismissal. The petitioners claimed that they were not paid their salaries, overtime pay, holiday pay, premium pay for holiday and rest day, 13th month pay, and service incentive leave pay. They further alleged that respondent abruptly terminated their employment without valid cause and without due process. On the other hand, respondent contended that petitioners were hired on a contractual basis and their contracts were dependent on the contract between respondent and Sta. Lucia Realty Development, Inc. Respondent claimed that petitioners committed misconduct which resulted in damage and prejudice to Sta. Lucia. The Labor Arbiter found respondent liable for illegal dismissal and ordered the reinstatement of the petitioners with backwages. Respondent appealed the decision to the NLRC, which affirmed the Labor Arbiter's decision and dismissed the appeal. However, the NLRC took notice of the withdrawal of 11 of the 38 original complainants, who submitted Affidavits of Desistance and/or Withdrawal, together with Quitclaims and Waivers.

The petitioners in this case were formerly employed by the respondent company. They filed complaints before the Labor Arbiter alleging that they were illegally dismissed from their employment. The Labor Arbiter ruled in favor of the petitioners and ordered the respondent to pay backwages, service incentive leave pay, and 13th month pay.

Aggrieved, the respondent company filed an appeal before the National Labor Relations Commission (NLRC). However, the NLRC upheld the decision of the Labor Arbiter and denied the respondent's motion for reconsideration.

Undeterred, the respondent company appealed to the Court of Appeals (CA). The CA partially granted the respondent's appeal, ruling that the petitioners were not illegally dismissed but voluntarily abandoned their work. The CA awarded nominal damages to the petitioners for the violation of their right to due process. However, the CA upheld the validity of the Affidavits of Desistance and Quitclaims of the 11 complainants who withdrew their complaints.

The petitioners filed a motion for partial reconsideration, which was denied by the CA. Consequently, the petitioners filed a petition for review before the Supreme Court.

The petitioners raised several grounds to support their petition, mainly questioning the CA's findings of fact. The Supreme Court noted that it is not a trier of facts, but there are exceptions to this rule. In this case, the Supreme Court gave due course to the petition as the findings of fact and conclusions of law of the Labor Arbiter and NLRC differed from those of the CA.

ISSUES:

1. Whether the dismissal of the petitioners is valid.

2. Whether the Affidavits of Desistance and Quitclaims of 11 of the 38 original complainants are valid.

3. Whether the dismissal of the petitioners was based on just cause.

4. Whether the respondent complied with the procedural due process requirements.

5. Whether the documents submitted by the respondents are valid.

6. Whether the complainants had ample time to challenge the validity of the documents.

7. Whether the complainants who desisted and withdrew from the case signed the verification attached to the motion seeking reconsideration.

8. Whether the desisting complainants signed the manifestation authorizing the new counsel to represent them in the proceedings.

RULING:

1. The Supreme Court finds the dismissal of the petitioners partly meritorious. For a dismissal to be valid, it must comply with both the substantive and procedural due process requirements. Substantive due process requires that the dismissal be based on a just or authorized cause under the Labor Code. Procedural due process requires giving the employee notice and an opportunity to be heard. In this case, the Court finds that the respondent failed to comply with the substantive requirements of the law by proving just cause for the dismissal. The Court disagrees with the appellate court's conclusion that the petitioners were guilty of gross and habitual neglect of their duties. The evidence presented by the respondent does not establish gross neglect of duties as required by law.

2. The Court does not address the issue of the validity of the Affidavits of Desistance and Quitclaims since it is not relevant to the resolution of the case.

3. The Court ruled that the dismissal of the petitioners was not based on just cause. The Court emphasized that dismissal is the ultimate penalty that can be imposed on an employee, and it should only be imposed when warranted by the circumstances. In this case, it was the first time that the petitioners allegedly committed gross and habitual neglect of duties, and thus dismissal was deemed too harsh a penalty. The burden is on the employer to prove that the dismissal is for a just or authorized cause, and in this case, the respondent failed to discharge that burden.

4. The Court held that the respondent failed to comply with the procedural due process requirements. The Court referred to the two-written notice rule under the Labor Code, which necessitates a written notice specifying the grounds for termination and giving the employee an opportunity to explain his side, a hearing or conference where the employee can respond to the charges and present evidence, and a written notice of termination indicating that the grounds have been established to justify the termination. None of these procedural requisites were complied with by the respondent. The sample letters provided by the respondent were not sufficiently shown to have been sent to the petitioners, and there was no showing that the petitioners were given a chance to explain their side or respond to the charges against them.

5. The Supreme Court partially granted the petition and reversed the Decision of the Court of Appeals. The March 31, 2003 Decision of the Labor Arbiter was reinstated with modifications. The Court ordered the respondent to compute and pay full backwages to the petitioners from the time of their illegal dismissal on January 15, 2001, up to the finality of the Decision. In lieu of reinstatement, the respondent was directed to pay separation pay to the petitioners. The monetary awards granted would earn legal interest at the rate of six percent per annum from the date of the finality of the Decision until fully paid. The Decision of the Labor Arbiter was affirmed in all other respects.

PRINCIPLES:

• Dismissal must comply with both substantive and procedural due process requirements.

• Substantive due process requires that the dismissal be based on a just or authorized cause under the Labor Code.

• Procedural due process requires giving the employee notice and an opportunity to be heard.

• Neglect of duty, to be a ground for dismissal, must be both gross and habitual.

• Dismissal is the ultimate penalty and should only be imposed when warranted by the circumstances. It should be reasonable, tempered with compassion and understanding, and not imposed as a single or isolated act of negligence.

• In termination cases, the employer bears the burden of proving that the dismissal is for a just or authorized cause. Failure to prove this would render the dismissal unlawful.

• Procedural due process requires compliance with the two-written notice rule, which includes a written notice of termination served on the employee indicating that the grounds for termination have been established. The employee should also be given an opportunity to explain his side and present evidence.

• Failure to comply with the two-written notice rule and provide procedural due process taints the dismissal with illegality.

• Where the dismissal was without just or authorized cause and there was no due process, the employee is entitled to reinstatement without loss of seniority rights and other privileges, as well as backwages, allowances, benefits, or their monetary equivalent. If reinstatement is no longer possible, the backwages shall be computed from the time of the illegal termination up to the finality of the decision.

• In addition to backwages, the employee may also be entitled to separation pay as an alternative to reinstatement.

• Legal interest shall be imposed on the monetary awards at the rate of six percent (6%) per annum from the finality of the decision until fully paid.

• The court may quote with approval the findings of lower courts when they are sufficient and valid.

• Parties have the right to challenge the validity of documents submitted during the proceedings.

• The verification attached to a motion seeking reconsideration may be signed by several complainants, but not by those who desisted and withdrew from the case.

• The manifestation authorizing a new counsel to represent complainants in the proceedings must be signed by all complainants, including those who desisted.