Constructive Dismissal


▪ Constructive dismissal refers to a quitting because continued employment is rendered impossible, unreasonable or unlikely; as, an offer involving a demotion in rank and a diminution in pay.

▪ Constructive dismissal is a form of illegal dismissal.

1. Concept

“Constructive dismissal” – refers to “[a] quitting because continued employment is rendered impossible, unreasonable or unlikely; as, an offer involving a demotion in rank and a diminution in pay.” (Philippine Japan Active Carbon Corporation v. Quiñanola, G.R. No. 83239, 08 March 1989)

Otherwise stated, constructive dismissal occurs “when there is cessation of work because continued employment is rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employee leaving the latter with no other option but to quit.” (Tan Brothers Corporation of Basilan City v. Escudero, G.R. No. 188711, 08 July 2013)

2. Constructive dismissal: Illegal dismissal

Constructive dismissal is a form of illegal dismissal.

Whereas an illegal dismissal is the result of action by the employer, a constructive dismissal is the result of an action by the employee who find continued employment impossible, unreasonable, or unlikely, due to actions or omissions by the employer.

BARBA v. LICEO DE CAGAYAN UNIVERSITY, G.R. No. 193857, 28 November 2012

[The employee – a College Dean – initiated a constructive dismissal case after she refused to be transferred from her position as Dean of the College of Physical Therapy (which was closed due to low enrollment) to having a teaching load in the College of Nursing. The employer arrived at this management decision considering that the employee had signed a Scholarship Contract requiring her to serve at least 10 years in exchange for the grant. When the College of Physical Therapy was abolished, the employee still had 2 years left to serve.]

[RESOLUTION] 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. In this case, [the employee’s] transfer was not unreasonable, inconvenient or prejudicial to her. On the contrary, the assignment of a teaching load in the College of Nursing was undertaken by [the employer] to accommodate [the employeE] following the closure of the College of Physical Therapy. [The employer] further considered the fact that [the employee] still has two years to serve the university under the Scholarship Contract. 

[The employee’s] subsequent transfer to another department or college is not tantamount to demotion as it was a valid transfer. There is therefore no constructive dismissal to speak of. That [the employee] ceased to enjoy the compensation, privileges and benefits as College Dean was but a logical consequence of the valid revocation or termination of such fixed-term position. Indeed, it would be absurd and unjust for respondent to maintain a deanship position in a college or department that has ceased to exist. Under the circumstances, giving [the employee] a teaching load in another College/Department that is related to Physical Therapy — thus enabling her to serve and complete her remaining two years under the Scholarship Contract — is a valid exercise of management prerogative on the part of respondent. #

While the employer has the various rights under the principle of management prerogative, it should be remembered that such is subject to two limitations: good faith and with due regard to the rights of the employees.

3. Test in constructive dismissal

The test is “whether a reasonable person in the employee’s position would have felt compelled to give up his position under the circumstances.” (Tan Brothers Corporation of Basilan City v. Escudero, supra.)

The focus of the test is on whether a “reasonable person – under the same situation – would have no other recourse but to leave employment due to the circumstances created by the employer.” (Ibid.)

Thus, in Tan Brothers Corporation of Basilan City v. Escudero, when the employee “was deprived of office space, was not given further work assignment and was not paid her salaries until she was left with no choice but stop reporting for work all combine to make out a clear case of constructive dismissal.” (Ibid.)


[The employee – a Lawyer hired as an Assistant Vice-President and Head of the Pensions Department – filed a case for constructive dismissal after experiencing varying degrees of difficulties and discrimination in the company. In response, the employer claimed that the employee refused to be transferred and re-assigned as the Assistant Vice-President of the Legal Department.]

[RESOLUTION] … It may be true that in the transfer of [the employee] from the Pensions Department to the Legal Department, there was no demotion in rank nor diminution of the salaries, benefits and privileges. But this is not the only standard that must be satisfied in order to substantiate the transfer. In the pursuit of its legitimate business interests, management has the prerogative to transfer or assign employees from one office or area of operation to another – provided there is no demotion in rank or diminution of salary, benefits, and other privileges; and the action is not motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause.

Discrimination is the unequal treatment of employees, which is proscribed as an unfair labor practice by Art. 248(e) of the Labor Code. It is the failure to treat all persons equally when no reasonable distinction can be found between those favored and those not favored.

Bad faith has been defined as a state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for an ulterior purpose. It implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

In the case at bar, bad faith and discrimination on the part of [the employer] are profusely perceived from its actions.

First, as early as 23 August 1998, unbeknown to [the employee], [the employer] had already advertised in the Manila Bulletin for the former’s replacement. [The employee] was not even notified in advance of an impending transfer.

Second, the President and CEO of petitioner corporation, Jose L. Cuisia, Jr., in his Memorandum dated 18 December 1998, announced the appointment of [the employee’s] replacement effective 14 December 1998, or during the time that [the employee] was still on official sick leave. It is worthy to note that on 10 December 1998, [the employee], through a letter of even date, protested her sudden unexplained transfer, more so, to a non-existing position. [The employee], in said letter, likewise pointed out that her department surpassed the target fund level volume set by the company (which negates [the employer’s] allegation of ineptness on the part of [the employee], used as ground by the former to justify the transfer), and thereby requested for status quo, until all issues were resolved. No response was made.

Third, the transfer of respondent to the Legal Department was unreasonable, inconvenient and prejudicial to her. [The employer] must have known that [the employee] has no adequate exposure in the field of litigation, and yet she was transferred to the Legal Department, and as AVP at that. The position of AVP-Legal would have placed [the employee] in a very inopportune position because she would be heading a team of lawyers who are far more experienced than she was in the area of litigation. It was a poor business decision and it is unlikely that the officers of [the employer] would have made such a decision, except to inconvenience or prejudice [the employee]. Under the circumstances, the decision to transfer was unreasonable.

Fourth, there was, likewise, discrimination against [the employee], as shown from the following: (a) the Pensions Department was run by [the employee] with practically no support from management. [The employee] was left to fend for herself, and yet was required to bring in the numbers, i.e., generate and develop accounts. As found by the Court of Appeals, effective January 1998, [the employee’s] marketing manager and marketing officer were transferred to Group Insurance Division. [The employee], thereafter, was never given replacements for said positions, contrary to Cuisia’s assurance. [The employee] herein ran the Pensions Department single-handedly and with only one Administrative Assistant as her staff. [The employee] did the field work, the desk work (administrative, legal, finance, marketing), out-of-town meetings, client presentations, aside from her work with Philam Savings Bank as fund manager; (b) [the employee] tried to avail herself of her car loan benefit sometime in November 1998 by filing the appropriate application. However, action on this application was deferred by Reynaldo Centeno in his letter dated 10 December 1998, saying that respondent’s employment status has been the subject of several discussions between the high ranking officers of [the employer]; and (c) it is a tradition on the part of [the employer], during the Christmas season, to give its officers and employees a season’s giveaway, i.e., ham and queso de bola. [The employee] sent an authorized representative to ask for her share, but, unfortunately, she was not in the list of recipients. Her name was not listed in the Legal Department, nor in the Pensions Department. [The employee’s] name, when verified with the Personnel Department, was not in the list of employees of Philamlife.

Fifth, as clearly pointed out by [the employee], she formally rejected the offer of P250,000 for her to leave the company. The refutation was done in writing and duly received by the three highest offices of [the employer], namely: the Office of the President; the Office of the Executive Vice-President; and the Office of the Senior Vice-President and Head of Human Resources. Incongruously, taking into consideration the said contents of the formal letter of rejection, there was no response whatsoever from the aforesaid offices. It may be true, as stated by [the employer], that “the alleged memorandum pertaining to the meeting held on 18 November 1998 on the alleged P250,000 settlement offer was prepared by [the employee] alone without any participation from the company,” but the fact remains that no formal response was ever made by any of the three offices which received the same. The contents thereof, if untrue, would have elicited a stark and strong reaction from any of the three offices.

x x x

In fine, this Court rules that there was constructive dismissal…

Constructive dismissal exists when an act of clear discrimination, insensibility or disdain by an employer has become so unbearable to the employee leaving him with no option but to forego with his continued employment. The circumstances which prevailed in the working environment of the [employee] clearly demonstrate this. The failure of the Labor Arbiter to resolutely consider these prevailing circumstances before [the employee] was asked to transfer was a major flaw in his decision. Clearly, had the Labor Arbiter considered them, he would have concluded that the transfer of respondent from the Pensions Department to the Legal Department was not a legitimate exercise of management prerogative on the part of [the employer]. Before the order to transfer was made, discrimination, bad faith, and disdain towards [the employee] were already displayed by [the employer]. (Emphasis supplied; citations omitted.)


Similarly, an employee who was a reassigned from a Transportation Services Manager to a Staff assistant and made to sit as his new post “not assigned any meaningful work at all” – was considered to have been constructively dismissed. Thus:


… The dismal performance evaluations of [the employee] were prepared by San Juan and Pineda after [the employee] already implicated his two superiors in his Report dated January 4, 1996 in an alleged fraudulent scheme against the Company. More importantly, we give weight to the following instances establishing that [the employee] was not merely transferred from the position of Transportation Services Manager to the position of Staff Assistant to the Corporate Purchasing and Materials Control Manager; he was evidently demoted.

x x x

First, as the Court of Appeals observed, [the employee’s] demotion is readily apparent in his new designation. Formerly, he was the Transportation Services Manager; then he was made a Staff Assistant – a subordinate – to another manager, particularly, the Corporate Purchasing and Materials Control Manager.

Second, the two posts are not of the same weight in terms of duties and responsibilities. [The employee’s] position as Transportation Services Manager involved a high degree of responsibility, he being in charge of preparing the budget for all of the vehicles of the Company nationwide. As Staff Assistant of the Corporate Purchasing and Materials Control Manager, [the employee] contended that he was not assigned any meaningful work at all. The Company utterly failed to rebut [the employee’s] contention. It did not even present, at the very least, the job description of such a Staff Assistant. The change in the nature of work resulted in a degrading work condition and reduction of duties and responsibility constitute a demotion in rank. In Globe Telecom, Inc. v. Florendo-Flores, we found that there was a demotion in rank even when the respondent therein continued to enjoy the rank of a supervisor, but her function was reduced to a mere house-to-house or direct sales agent.

Third, while [the employee’s] transfer did not result in the reduction of his salary, there was a diminution in his benefits. The Company admits that as Staff Assistant of the Corporate Purchasing and Materials Control Manager, [the employee] could no longer enjoy the use of a company car, gasoline allowance, and annual foreign travel, which [the employee] previously enjoyed as Transportation Services Manager.

Fourth, it was not bad enough that [the employee] was demoted, but he was even placed by the Company under the control and supervision of Pineda as the latter’s Staff Assistant. To recall, Pineda was one of the Company officials who [the employee] accused of defrauding the Company in his Report dated January 4, 1996. It is not too difficult to imagine that the working relations between [the employee], the accuser, and Pineda, the accused, had been strained and hostile. The situation would be more oppressive for [the employee] because of his subordinate position vis-à-vis Pineda.

Fifth, all the foregoing caused [the employee] inconvenience and prejudice, so unbearable for him that he was constrained to seek remedy from the NLRC. The Labor Arbiter was correct in his observation that had [the employee] resigned immediately after his “transfer,” he could be said to have been constructively dismissed. There is constructive dismissal when there is a demotion in rank and/or diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the employee. #

As may be derived from the above-cited cases, constructive dismissal should not be taken lightly. It is, after all, a form of illegal dismissal and thus carries the same consequences.

/Updated: February 5, 2023

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