Discipline and Dismissal of Employees

Disciplinary action is a management prerogative. Imposing penalties should be done in good faith. The penalty must be commensurate to the offense.

2. Concept

“Under the doctrine of management prerogative, every employer has the inherent right to regulate, according to his own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, the time, place and manner of work, work supervision, transfer of employees, lay-off of workers, and discipline, dismissal, and recall of employees.” (Rural Bank of Cantilan, Inc. v. Julve, G.R. No. 169750, 27 February 2007)

“In general, management has the prerogative to discipline its employees and to impose appropriate penalties on erring workers pursuant to company rules and regulations.” (Philippine Airlines v. National Labor Relations Commission, G.R. No. 115785, 04 August 2000)

“Disciplinary action against an erring employee is a management prerogative which, generally, is not subject to judicial interference. However, this policy can be justified only if the disciplinary action is dictated by legitimate business reasons and is not oppressive” (Areno, Jr. v. Skycable PCC-Baguio, G.R. No. 180302, 05 February 2010)

3. Right to discipline

“Among the employer’s management prerogatives is the right to prescribe reasonable rules and regulations necessary or proper for the conduct of its business or concern, to provide certain disciplinary measures to implement said rules and to assure that the same would be complied with. At the same time, the employee has the corollary duty to obey all reasonable rules, orders, and instructions of the employer; and willful or intentional disobedience thereto, as a general rule, justifies termination of the contract of service and the dismissal of the employee.” (St. Luke’s Medical Center, Inc. v. Sanchez, G.R. No. 212054, 11 March 2015)

“It is true that an employer is given a wide latitude of discretion in managing its own affairs. The broad discretion includes the implementation of company rules and regulations and the imposition of disciplinary measures on its employees.” (Dongon v. Rapid Movers and Fowarders Co., Inc., G.R. No. 163431, 28 August 2013)

“It is axiomatic that appropriate disciplinary sanction is within the purview of management imposition. What should not be overlooked is the prerogative of an employer company to prescribe reasonable rules and regulations necessary for the proper conduct of its business and to provide certain disciplinary measures in order to implement said rules to assure that the same would be complied with.” (Areno, Jr. v. Skycable PCC-Baguio, supra.)

a. Employee’s obligation to comply

“It is basic in any enterprise that an employee has the obligation of following the rules and regulations of its employer. More basic further is the elementary obligation of an employee to be honest and truthful in his work. It should be noted that honesty is one of the foremost criteria of an employer when hiring a prospective employee. Thus, we see employers requiring an NBI clearance or police clearance before formally accepting an applicant as their employee. Such rules and regulations are necessary for the efficient operation of the business.” (Dongon v. Rapid Movers and Fowarders Co., Inc., supra.)

“While the law imposes many obligations upon the employer, nonetheless, it also protects the employer’s right to expect from its employees not only good performance, adequate work, and diligence, but also good conduct and loyalty. In fact, the Labor Code does not excuse employees from complying with valid company policies and reasonable regulations for their governance and guidance.” (Rural Bank of Cantilan, Inc. v. Julve, G.R. No. 169750, 27 February 2007)

a. Effects of non-compliance

“Employees who violate such rules and regulations are liable for the penalties and sanctions so provided, e.g., the Company’s Manual of Discipline (as in this case) and the Labor Code.” (Dongon v. Rapid Movers and Fowarders Co., Inc., supra.)

An employer may terminate an employment for just causes, such as serious misconduct or willful disobedience by the employee of the lawful orders of his employer or his representative in connection with his work. (Article 296[a], Labor Code)

“The constitutional protection afforded to labor does not condone wrongdoings by the employee; and an employer’s power to discipline its workers is inherent to it.” (Dongon v. Rapid Movers and Fowarders Co., Inc., supra.)

4. Conduct of investigation

a. Management prerogative how to conduct investigation

“Disciplining employees does not only entail the demarcation of permissible and impermissible conduct through company rules and regulations, and the imposition of appropriate sanctions. It also involves intervening mechanisms ‘to assure that [employers’ rules] would be complied with.’ These mechanisms include the conduct of investigations to address employee wrongdoing.” (Philippine Span Asia Carriers Corporation [formerly Sulpicio Lines, Inc.] v. Pelayo, G.R. No. 212003)

“While due process, both substantive and procedural, is imperative in the discipline of employees, our laws do not go so far as to mandate the minutiae of how employers must actually investigate employees’ wrongdoings. Employers are free to adopt different mechanisms such as interviews, written statements, or probes by specially designated panels of officers.” (Ibid.)

b. Preparatory investigation not yet covered by twin-notice rule

“The two-notice rule applies at that stage when an employer has previously determined that there are probable grounds for dismissing a specific employee. The first notice implies that the employer already has a cause for termination. The employee then responds to the cause against him or her. The two-notice rule does not apply to anterior, preparatory investigations precipitated by the initial discovery of wrongdoing. At this stage, an employer has yet to identify a specific employee as a suspect. These preparatory investigations logically lead to disciplinary proceedings against the specific employee suspected of wrongdoing, but are not yet part of the actual disciplinary proceedings against that erring employee. While the Labor Code specifically prescribes the two-notice rule as the manner by which an employer must proceed against an employee specifically charged with wrongdoing, it leaves to the employer’s discretion the manner by which it shall proceed in initially investigating offenses that have been uncovered, and whose probable perpetrators have yet to be pinpointed.” (Ibid.)

“Thus, subject to the limits of ethical and lawful conduct, an employer is free to adopt any means for conducting these investigations. They can, for example, obtain information from the entire roster of employees involved in a given workflow. They can also enlist the aid of public and private investigators and law enforcers, especially when the uncovered iniquity amounts to a criminal offense just as much as it violates company policies.” (Ibid.)

“When employee wrongdoing has been uncovered, employers are equally free to adopt contingency measures; lest they, their clients, and other employees suffer from exigencies otherwise left unaddressed. These measures may be enforced as soon as an employee’s wrongdoing is uncovered, may extend until such time that disciplinary proceedings are commenced and terminated, and in certain instances, even made permanent. Employers can rework processes, reshuffle assignments, enforce stopgap measures, and put in place safety checks like additional approvals from superiors.” (Ibid.)

“In Mandapat v. Add Force Personnel Services, lnc., this Court upheld the temporary withholding of facilities and privileges as an incident to an ongoing investigation. Thus, this Court found no fault in the disconnection of an employee’s computer and the suspension of her internet access privilege. Employers can also place employees under preventive suspension, not as a penalty in itself, but as an intervening means to enable unhampered investigation and to foreclose “a serious and imminent threat to the life or property of the employer or of the employee’s co-workers.” (Ibid.)

c. Due process requirement

While how to conduct investigation, Labor Law mandates that an employer hear out the employee first before imposing any sanction or penalty. This is the due process requirement for just causes.

Read more: Just Causes, Just Cause Procedure

5. Imposing penalties

a. Good faith in imposing penalties

“While an employer is given a wide latitude of discretion in managing its own affairs, in the promulgation of policies, rules and regulations on work-related activities of its employees, and in the imposition of disciplinary measures on them, the exercise of disciplining and imposing appropriate penalties on erring employees must be practiced in good faith and for the advancement of the employer’s interest and not for the purpose of defeating or circumventing the rights of employees under special laws or under valid agreements.” (Maula v. Ximex Delivery Express, Inc., G.R. No. 207838, 25 January 2017)

b. Principle: Penalty must be commensurate with the offense

“Although we recognize the inherent right of the employer to discipline its employees, we should still ensure that the employer exercises the prerogative to discipline humanely and considerately, and that the sanction imposed is commensurate to the offense involved and to the degree of the infraction.” (Ibid.)

c. Consider length of service, number of infractions

“The discipline exacted by the employer should further consider the employee’s length of service and the number of infractions during his employment. The employer should never forget that always at stake in disciplining its employee are not only his position but also his livelihood, and that he may also have a family entirely dependent on his earnings.” (Ibid.)

d. Dismissal as last resort

“To us, dismissal should only be a last resort, a penalty to be meted only after all the relevant circumstances have been appreciated and evaluated with the goal of ensuring that the ground for dismissal was not only serious but true. The cause of termination, to be lawful, must be a serious and grave malfeasance to justify the deprivation of a means of livelihood. This requirement is in keeping with the spirit of our Constitution and laws to lean over backwards in favor of the working class, and with the mandate that every doubt must be resolved in their favor.” (Ibid.)

e. Employer’s prerogative whether to be strict or not

“It is axiomatic that appropriate disciplinary sanction is within the purview of management imposition. Thus, in the implementation of its rules and policies, the employer has the choice to do so strictly or not, since this is inherent in its right to control and manage its business effectively.” (Philippine Span Asia Carriers Corporation [formerly Sulpicio Lines, Inc.] v. Pelayo, G.R. No. 212003, 28 February 2018 citing San Miguel Corporation v. National Labor Relations Commission, G.R. Nos. 146121-22, 16 April 2008)

6. Power of dismissal

a. A factor in the four-fold test of employment

To ascertain the existence of an employer-employee relationship jurisprudence has invariably adhered to the four-fold test, to wit:

1) The selection and engagement of the employee;

2) The payment of wages;

3) The power of dismissal; and

4) The power to control the employee’s conduct, or the so-called “control test.” (Atok Big Wedge Company, Inc. v. Gison, G.R. No. 169510, 08 August 2011)

/Updated: February 15, 2023

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