Almirante: Redundancy

Dominador Almirante

RESPONDENTS Ricardo S. Macapagal and 12 others were employed by petitioner Coca-Cola Femsa Philippines Inc. (Company) at its manufacturing plant in San Fernando City, Pampanga, as part of the Product Availability Group (PAG). In January 2011, the Company announced its plan to abolish PAG, together with all of its warehouses and the positions under it, including those held by respondents and outsource its remaining functions to The Redsystem Company Inc. (TRCI).

Thereafter, respondents received letters terminating their employment due to redundancy effective March 1, 2011. Thus, they filed a complaint for illegal dismissal, arguing that the redundancy program was done in bad faith to undermine their security of tenure. They also alleged that TRCI is not an independent contractor as it is a wholly owned subsidiary of the Company.

For its part, the Company denied respondents’ claims. It averred that it is engaged in the business of manufacturing and selling carbonated drinks and other beverage items nationwide while PAG’s work involved coordination with the external distribution channels. To improve operation efficiency and effectiveness, the Company resolved to outsource all of its distribution and coordination efforts under PAG to an independent contractor, TRCI. Proper notices were given to respondents and to the Department of Labor and Employment. It gave more than the required separation pay and other benefits to respondents who in turn voluntarily executed their respective notarized waiver and quitclaim.

Does this defense find merit?

Ruling: Yes.

Redundancy is an authorized cause for termination of employment under Article 29832 (formerly, Article 283) of the Labor Code. It exists when “the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise.” It can be due to “a number of factors, such as the overhiring of workers, a decrease in the volume of business or the dropping of a particular line or service previously manufactured or undertaken by the enterprise.” The determination of whether the employees’ services are no longer necessary or sustainable, and therefore, properly terminable for redundancy, is an exercise of business judgment. In making such decision, however, management must not violate the law nor declare redundancy without sufficient basis.

To ensure that the dismissal is not implemented arbitrarily, jurisprudence requires the employer to prove, among others, its good faith in abolishing the redundant positions as well as the existence of fair and reasonable criteria in the selection of employees who will be dismissed from employment due to redundancy. Such fair and reasonable criteria may include, but are not limited to: (a) less preferred status, i.e., temporary employee; (b) efficiency; and (c) seniority.

To establish good faith, the employer must provide substantial proof that the services of the employees are in excess of what is required of the company. In San Fernando Coca-Cola Rank-and-File Union v. Coca-Cola Bottlers Philippines Inc., G.R. 200499, Oct. 4, 2017, 842 SCRA I, (San Fernando), wherein the same company involved in this case terminated the employment of 27 employees due to the phasing out of two selling and distribution systems, the Court held that the redundancy program was valid as it was based on a careful study on how to simplify the multi-layered distribution system and make the business operations more cost effective.

Since the market execution partners or dealership system incurs the lowest cost-to-serve, the other distribution systems had to be phased out, resulting in the termination of the employees, as what happened in this case. The Court ruled that the phasing out of distribution systems was an exercise of management prerogative and there was no proof that it was exercised in a malicious or arbitrary manner.

Similarly, in this case, the Court finds that the termination of respondents was due to the simplification of the distribution systems in the Company, considering that PAG’s work primarily involved coordination for the Company’s finished products to reach the distribution channels for delivery to the customers. Since the Company’s operating income still posted negative figures despite improvement in sales volumes in 2007, management further reviewed the Company’s distribution channels to identify areas where cost may be reduced, as well as opportunities to enhance operational efficiency.

Based on this study, the Company resolved to abolish all positions under PAG, including those which were previously held by respondents. Since all PAG positions were abolished, the CA erred in ruling that the Company still needed to choose who among the employees should be dismissed, to which the fair and reasonable criteria requisite is pertinent. (Coca-Cola Femsa Philippines Inc. vs. Ricardo S. Macapagal, et al. G.R. 232669, July 29, 2019).