Assailed in this petition is the December 20, 2005 Decision^[1] of the Court of Appeals in CA-G.R. SP No. 87910 which declared that petitioner Lorenzo Ma. D.G. Aguilar was not constructively dismissed; and which set aside the May 27, 2003^[2] Decision of the Labor Arbiter as well as the May 25, 2004 Resolution^[3] of the National Labor Relations Commission (NLRC) both holding that petitioner was constructively dismissed.

The facts show that respondent Burger Machine Holdings Corporation (Burger Machine) is a domestic corporation engaged in the business of food service. Respondents Caesar B. Rodriguez, Fe Esperanza S. Rodriguez, and Melchor V. De Jesus, Jr., (De Jesus) are Burger Machine's Chairperson, President, and Vice-President, respectively.

On September 26, 2000, Burger Machine hired petitioner as a Strategic Business Unit Manager Trainee. On March 26, 2001 he was regularized and assigned as Profit Center Manager of the Burger Machine North Corporation (BMNC) and the overseer of the Central Luzon Food Corporation (CLFC) and the Eastern Luzon Food Corporation (ELFC). He was likewise tasked to spearhead the expansion of their outlets in Baguio City.

On June 26, 2001, petitioner was commended for his valuable assistance and guidance to the trainee managers of CLFC and ELFC.^[4] This was followed by another commendation on July 6, 2001 for his guidance to the trainee-manager of CLFC in achieving the following: (a) highest NIBT as of May; (b) 2nd Best ROI; (c) 3rd Highest ADS; (d) 3rd Highest Sales Growth as of May; (e) January-May Bad Debts of .5% of Net Sales; and (f) Fastest Expanding Profit Center.^[5]

On October 9, 2001, however, Burger Machine released the results of the audit of BMNC's operation showing that petitioner had not complied with the company's purchasing system policy manual and that he made several purchases, the amounts of which were beyond his authority to approve.^[6] In reply thereto, petitioner attributed the lapses in the approval of purchases to the lack of information on the standard operating procedures of the company.

On October 17, 2001, De Jesus directed petitioner to cease from overseeing the CLFC and ELFC and to concentrate on BMNC "to resolve faster all critical problems such as shortages, low ADS, low promo compliance, etc."^[7] On November 19, 2001, De Jesus ordered him to reduce his gross sales shortages to 1% or less by the end of November 2001.^[8] Petitioner was able to reduce this shortage to as low as 0.86% for the month of November.^[9]

At the end of the year 2001, petitioner did not receive his 14th month pay bonus of P35,000.00 while the amount of P15,291.00 representing the alleged unauthorized expenses was deducted from his salary.

On March 7, 2002, De Jesus ordered petitioner to turn over BMNC to Ms. Gloria Centino "starting March 12 up to the end of March."^[10] No reason was stated in the directive, neither was a new assignment given to petitioner, thus he wrote a letter to respondent Caesar B. Rodriguez, seeking an explanation for the actions of De Jesus, to wit:

Considering that my accomplishments and contribution to the company have been acknowledged by my superiors, and my colleagues as well, it is a puzzle to me why Sir [De Jesus] - in a series of dialogues I have had with him since September 2001 - conveyed, reiterated, and insisted that I resign under your strict and unbending personal instructions. This turn of events have caused me and my whole family: many sleepless night, anxiety, stress, and tremendous pressure. Today, tragedy struck my whole family when my wife lost our fourth child, a baby daughter, five-months on the way to maternity. I have, however, continued to give my best and undivided service and commitment to my job and to the company, in spite of the constant fear that at anytime, I may have to leave my job against my will.^[11]

After the turn over of BMNC, petitioner went on an approved leave of absence. On April 23, 2002, he was appointed as Profit Center Manager of Tatyana Foods Corporation (TFC), a new project of Burger Machine to be established in La Union, Ilocos Sur, Ilocos Norte, Cagayan and Isabela.^[12] Petitioner accepted the appointment and started scouting for the area in connection with the business plan.

On May 14, 2002, De Jesus informed petitioner that he would instead be transferred to the National Capital Region (NCR) to oversee the operations of the People's Dimsum (PD). On May 17, 2002, petitioner figured in an accident while on his way to De Jesus' office in Metro Manila. He was thus hospitalized and was constrained to go on leave. He requested for cash advance and financial assistance from the company for his medical expenses but was denied.

On July 5, 2002, petitioner reported for work. On July 16, 2002, De Jesus issued a memorandum directing him to report at the Epifanio de los Santos Avenue (EDSA) office of Burger Machine on July 17, 2002 and onwards from 9:00 a.m. up to 6:00 p.m.^[13]

On July 17, 2002, petitioner filed a complaint for constructive dismissal contending that the totality of respondents' conduct constitutes harassment aimed to pressure him to resign from his job. Respondents, on the other hand, alleged that the transfer of the BMNC operations to Centino was due to petitioner's repeated failure to achieve the passing rate for quality food service control; that despite of this gross inefficiency, he was given a new assignment; that the delay in assigning him to a new Profit Center was due to his irregular attendance; that he was not able to assume his responsibility as Profit Center Manager of TFC because of his failure to go back to work and his unreasonable demands; and that petitioner's continued absence prompted them to assign him at the EDSA office starting July 17, 2002.^[14]

In its decision dated May 27, 2003, the Labor Arbiter ruled that petitioner was constructively dismissed and that respondent corporate officials of Burger Machine are solidarily liable with the latter for petitioner's monetary awards. The dispositive portion thereof, reads:

CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding complainant to have been illegally dismissed albeit constructively. Consequently, he should be reinstated immediately as Profit [Center] Manager and paid by respondent[s] in solidum, his backwages, which as of May 16, 2003 has already accumulated in the sum of P350,000.00.

In addition respondents, are solidarily ordered to pay complainant,

1. His 14th month pay for 2002;
   
2. P500,000.00 as moral damages[;]
   
3. P350,000.00 as exemplary damages; and
   
4. 10% of the money awards for and as attorney's fees.
   

SO ORDERED.^[15]

The foregoing decision was affirmed by the NLRC in its resolution dated May 25, 2004. Respondents filed a motion for reconsideration but was denied on September 17, 2004. On petition to the Court of Appeals, the latter reversed the finding of the NLRC and held that there was no constructive dismissal because petitioner's transfer to PD was without change in rank and salary and was not shown to be humiliating and prejudicial to petitioner. The decretal portion thereof, states:

WHEREFORE, upon the premises, the petition is GRANTED and the Decision dated May 27, 2003 of the Labor Arbiter, the [Resolution] dated May 25, 2004, and the Resolution dated September 17, 2004 of the NLRC are REVERSED and SET ASIDE. Private respondent's Complaint for constructive dismissal is DISMISSED.

SO ORDERED.^[16]

Hence, the instant petition.

The issue for resolution is whether petitioner was constructively dismissed.

The Court rules in the affirmative.

Constructive dismissal exists as an involuntary resignation on the part of the employee due to the harsh, hostile and unfavorable conditions set by the employer. In other words, it is an act amounting to dismissal but made to appear as if it were not. In fact, the employee who is constructively dismissed may be allowed to keep on coming to work. Constructive dismissal is therefore a dismissal in disguise. It is brought about where there is clear discrimination, insensibility or disdain by an employer and this becomes unbearable to the employee. The law recognizes and resolves this situation in favor of employees in order to protect their rights and interests from the coercive acts of the employer. Whereas valid termination by the employee under Art. 285 of the Labor Code contemplates such act to be voluntary, an employee who is forced to relinquish the position held through the employer's unfair or unreasonable acts is deemed to have been illegally terminated or discharged, as such the termination is implied to be involuntary.^[17]

In constructive dismissal cases, the employer has the burden of proving that its conduct and action or the transfer of an employee are for valid and legitimate grounds such as genuine business necessity. Particularly, for a transfer not to be considered a constructive dismissal, the employer must be able to show that such transfer is not unreasonable, inconvenient, or prejudicial to the employee. Failure of the employer to overcome this burden of proof, the employee's transfer shall no doubt be tantamount to constructive dismissal.^[18]

In the instant case, Burger Machine failed to discharge this burden. The labor tribunals below correctly found that the combination of the harsh actions of respondents rendered the employment condition of petitioner hostile and unbearable for the following reasons: First, in the March 7, 2002 Memorandum of De Jesus, no reason was stated why petitioner was directed to turn over BMNC to Centino. While the due process required by law is applied to dismissal cases, the same is also applicable to the instant controversy because it affects the status and right of petitioner to security of tenure.^[19] Note that the same Memorandum did not inform petitioner of his next assignment thereby placing him in a floating status. Burger Machine belatedly claimed in its position paper that petitioner was relieved of his position because of gross inefficiency. If this is the case, the action of respondents was thus punitive in nature. With more reason therefore that the ground for the turn over should be stated in the Memorandum to apprise him of the cause of such punitive action. This omission of the company is a trespass not only of petitioner's due process rights but also of the basic respect and professional courtesy due him as an employee.

Second, petitioner repeatedly claimed^[20] that respondent De Jesus was insisting on his resignation, yet the latter never denied said allegation in his November 26, 2002 affidavit.^[21] This only lends credence to the claim of petitioner that the constant pressure of De Jesus for him to quit his job rendered his employment with Burger Machine unbearable.

Third, Burger Machine made an unauthorized^[22] deduction on petitioner's salary representing the alleged expenses incurred without authority. The burden of proving that no such deduction was made lies with Burger Machine not only because it has custody of the records that might establish the same, but also because as an employer, it is placed in a position of a debtor who has the onus of establishing payment of the employee's salary in full and without deduction.^[23] Hence, its bare denials cannot overcome the contention of petitioner that such deductions were made.

Fourth, petitioner was subsequently appointed as Profit Center Manager of the TFC but Burger Machine recalled said appointment, again, without stating the reason therefor, and worse without serving him any formal memorandum withdrawing the appointment.

Fifth, he was offered an assignment in the NCR, specifically as Profit Center Manager of the PD but not actually appointed as such. Burger Machine averred that petitioner was ordered to report at the EDSA office in connection with his PD assignment. However, no such directive was contained in the July 16, 2002 Memorandum of De Jesus, thus:

Effective today, 17 July 2002, and onwards, you are officially expected to report to the undersigned in EDSA office at 9:00 a.m. up to 6:00 p.m. As has been the Company policy, you shall be required to log in and log out in the required Managers' records in order to get paid. All approval of leaves and official business must be with the required days/time of approval by the undersigned, not to mention, the need for supporting documents to justify the requests. Lastly, you shall be required to submit yourself to a medical examination by the Company Physician to attest your fitness for work.^[24]

The foregoing Memorandum is actually a transfer of petitioner to the EDSA office of Burger Machine which we find to be oppressive inasmuch as petitioner and his family are residents of Baguio City. The transfer would mean that petitioner would be away from his family or that he would bring his entire family to Manila entailing expenses.^[25] While the Court recognizes the prerogative of an employer to transfer an employee,^[26] we cannot apply the same in the instant case considering that Burger Machine advanced no justification or necessity for said transfer.

If the underlying reason for the posting of petitioner at the EDSA office of Burger Machine was his series of request for leave of absences, then the proper recourse is to make him explain for said absences and to impose the proper penalty if necessary. It appears, however, that all said requests for leave have valid bases, otherwise, they would not have been approved by Burger Machine. This only shows that the transfer of petitioner at the EDSA office was to pressure him and to ultimately ease him out of the company.

The test of constructive dismissal is whether a reasonable person in the employee's position would have felt compelled to give up his position under the circumstances. Based on the factual considerations in the instant case, we hold that the hostile and unreasonable working conditions of petitioner justified the finding of the Labor Arbiter and the NLRC that petitioner was constructively dismissed. Petitioner's performance may not have been exceptional as he ranked 14th in the quality food service control survey for the 1st quarter of 2002.^[27] But he was certainly not grossly inefficient as Burger Machine pictured him to be. In fact, he received several citations and was able to comply with the directive to reduce his shortages for the month of November 2001. From all indications, there is really no ground to dismiss petitioner for gross inefficiency. And, as Burger Machine saw it, the only way to get rid of the latter was to constructively dismiss him.

The Labor Arbiter and the NLRC's findings that petitioner was constructively dismissed are binding on this Court^[28] especially so that the contrary conclusion of the Court of Appeals was based on the misapprehension of the factual antecedents of this case. The appellate court focused only on the transfer of petitioner to the PD in the NCR without taking into consideration the entire factual milieu of the controversy. Had the Court of Appeals done so, it would have arrived at the same conclusion as the labor tribunals below.

Anent the solidary liability for the constructive dismissal of petitioner, the same cannot attach with respect to respondents Caesar B. Rodriguez and Fe Esperanza B. Rodriguez, Chairperson and President of Burger Machine, respectively, considering that no substantial evidence was presented to prove their participation in the acts of respondent De Jesus. It was only the latter who pressured petitioner to relinquish his position and was the one responsible for the issuance of the oppressive Memorandum transferring petitioner to the EDSA office. Liability must likewise be imputed to Burger Machine. The failure to exercise proper diligence in the supervision of its employees, is ultimately its responsibility.^[29]

Petitioner was properly awarded moral and exemplary damages. Moral damages may be recovered only where the dismissal of the employee was tainted by bad faith or fraud, or where it constituted an act oppressive to labor, and done in a manner contrary to morals, good customs, or public policy while exemplary damages are recoverable only if the dismissal was done in a wanton, oppressive, or malevolent manner. These damages, however, are not intended to enrich petitioner and should therefore be reduced to P50,000.00 each.^[30]

The award of 14th month pay must be deleted. Since the payment thereof is not required by law, substantial evidence showing that Burger Machine has the customary practice to give the same to its employees, is necessary. This, petitioner failed to satisfy.

The award of attorney's fees is sustained based on Article 111 of the Labor Code, Section 8, Rule VIII, Book III of its Implementing Rules, and paragraph 7, Article 2208 of the Civil Code. In actions for recovery of wages or where an employee was forced to litigate and thus incurred expenses to protect his rights and interests, a maximum of ten percent (10%) of the total monetary award by way of attorney's fees is justifiable.

WHEREFORE, the December 20, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 87910 is REVERSED and SET ASIDE. The May 27, 2003 Decision of the Labor Arbiter finding that petitioner was constructively dismissed, is REINSTATED with the following MODIFICATIONS: (a) Respondents Caesar B. Rodriguez and Fe Esperanza B. Rodriguez are absolved from personal liability; (b) the award of 14th month pay is deleted; and (c) the awards of moral and exemplary damages are reduced to P50,000.00 each.

SO ORDERED.

Panganiban, C.J., (Chairperson), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

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^[1] Rollo, pp. 51-67. Penned by Associate Justice Portia Aliño Hormachuelos and concurred in by Associate Justices Mariano C. Del Castillo and Magdangal M. De Leon.

^[2] Id. at 71-92. Penned by Labor Arbiter Melquiades Sol D. Del Rosario.

^[3] Id. at 93-108. Penned by Presiding Commissioner Raul T. Aquino and concurred in by Commissioner Victoriano R. Calaycay.

^[4] Id. at 683.

^[5] Id. at 684. The meaning of the abbreviated items is not found in the records.

^[6] Id. at 689-691.

^[7] Id. at 694.

^[8] Id. at 700.

^[9] Id. at 701.

^[10] Id. at 706.

^[11] Id. at 707.

^[12] Id. at 714.

^[13] Id. at 270.

^[14] Id. at 253-254.

^[15] Id. at 91-92.

^[16] Id. at 66.

^[17] Globe Telecom, Inc. v. Florendo-Flores, G.R. No. 150092, October 20, 2003, SC E-Library.

^[18]Philippine Industrial Security Agency Corporation v. Aguinaldo, G.R. No. 149974, June 15, 2005, 460 SCRA 229, 236.

^[19] Blue Dairy Corporation v. National Labor Relations Commission, G.R. No. 129843, September 14, 1999, 314 SCRA 401, 409.

^[20] Rollo, pp. 707, 709, and 726.

^[21] Records, pp. 120-123.

^[22] Article 113 of the Labor Code provides:

ART. 113. Wage Deduction. - No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:

^[23] Audion Electric Co., Inc. v. National Labor Relations Commission, 367 Phil. 620, 632-633 (1999).

^[24] Rollo, p. 270.

^[25] Philippine Industrial Security Agency Corporation v. Aguinaldo, supra note 18 at 236.

^[26] Id. at 236-237.

^[27] Rollo, p. 284.

^[28] Hda. Dapdap I v. National Labor Relations Commissions, 348 Phil. 785, 790 (1998).

^[29] Globe Telecom, Inc. v. Florendo-Flores, supra note 17.

^[30] Norkis Trading Co., Inc. v. National Labor Relations Commission, G.R. No. 168159, August 19, 2005, 467 SCRA 461, 473.