1. Concept

Fraud is deceit.

The commission of fraudrefers to “any act, omission, or concealment which involves a breach of a legal duty, trust or confidence just reposed, and is injurious to another.” (Section 4 (i), Rule I-A, DOLE D.O. No. 2015-147)

The commission of fraud implies “bad faith of the employee in failing to perform his job, to the detriment of the employer and the latter’s business.” (International School Manila v. Santos, G.R. No. 167286, 05 February 2014)

An employee committing fraud is deceiving the employer. This usually comes in the form of serious dishonesty or concealment of a material fact. When fraud is committed by the employee, this causes prejudice or injury to the employer.

“Dishonesty is defined as the disposition to lie, cheat, deceive, or defraud; untrustworthiness; lack of integrity; lack of honesty, probity or integrity in principle; lack of fairness and straightforwardness; disposition to defraud, deceive or betray.” (National Power Corporation v. Olandesca, G.R. No. 171434, 23 April 2010)

While dishonesty is closely associated to fraud, it should be noted that simple dishonesty will not suffice as a just cause for termination. Subject to the standards which will be discussed below, the dishonesty should be serious and grave in character.

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CASE STUDY

The Hongkong and Shanghai Banking Corporation v. Meneses

G.R. No. 116542, 30 July 1996

What species of dishonesty would constitute a ground for termination? Is a provision in the employee’s handbook stating that “any form of dishonesty” shall constitute “serious offense(s) calling for termination” valid and binding upon the respondent NLRC?

[The employee-clerk called in sick with an upset stomach. When his employer called his home, it was communicated that the employee earlier left. The following day, he was asked to explain the discrepancy. He claimed to have consulted a doctor for his stomach ache. When the employer called the doctor, he denied meeting the employee. Pursuant to the employee handbook stating the dismissal is the result for “any form of dishonesty”, the employee was thus terminated.]

x x x

[The employer] insists that [the employee] should be dismissed in accordance with rules contained in its employee’s handbook titled Working Together, Appendix A of which reads as follows:

Appendix A

Serious Offenses Calling For Termination — Any form of dishonesty, like but not limited to the following:

fraud

— making false or artificial entries in the books or records of the Bank

— failing to turn over money entrusted by a client for the Bank within a specified time

— theft of bank property

— using company funds/assets for any unofficial purpose.

— any violation of the Bank’s Code of Conduct which has penal consequences under relevant local laws.

— deliberately inflicting or attempting to inflict bodily injury upon a co-employee on Bank premises, or in case it is committed elsewhere, for reasons which are work related.

— sabotage or causing damage to work or equipment of the Bank, or any underhanded interference in Bank operations.

— any other serious offense analogous to the above

While [the employee handbook] makes “any form of dishonesty…” a “serious offense calling for termination,” such general statement must however be understood in the context of the enumeration of offenses, all of which are directly related to the function of the [the employer] as a banking institution. It is unarguable that [the employee’s] false information concerning his whereabouts on February 3, 1993 is not a fraud, nor a false entry in the books of the bank; neither is it a failure to turn over clients’ funds, or theft or use of company assets, or anything “analogous” as to constitute a serious offense meriting the extreme penalty of dismissal.

Like [the employer] bank, this Court will not countenance nor tolerate ANY form of dishonesty. But at the same time, we cannot permit the imposition of the maximum penalty authorized by our labor laws for JUST ANY act of dishonesty, in the same manner that death, which is now reinstated as the supreme sanction under the penal laws of our country, is not to be imposed for just any killing. The penalty imposed must be commensurate to the depravity of the malfeasance, violation or crime being punished. A grave injustice is committed in the name of justice when the penalty imposed is grossly disproportionate to the wrong committed.

In the context of the instant case, dismissal is the most severe penalty that an employer can impose on an employee. It goes without saying that care must be taken, and due regard given to an employee’s circumstances, in the application of such punishment. Moreover, [the employee’s] acts of dishonesty — his first offense in his seven years of employment… — did not show deceit nor constitute fraud and did not result in actual prejudice to [the employer]. Certainly, such peremptory dismissal is far too harsh, too severe, excessive and unreasonable under the circumstances.

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Consequently, fraud is a just cause for termination of employment given its possible serious repercussions to the employer.

2. Standards

DOLE D.O. 147-15 provides for the standards.

To be a valid ground for termination, the following must be present:

  1. There must be an act, omission, or concealment;
  2. The act, omission or concealment involves a breach of legal duty, trust, or confidence justly reposed;
  3. It must be committed against the employer or his/her representative; and
  4. It must be in connection with the employees’ work.

The following discusses each requirement.

a. Act, omission, concealment

1st Requisite: There must be an act, omission, or concealment.

This requisite relates to a behavior or conduct. While an act is positive conduct (something was done), an omission is a negative conduct (nothing was done). On the other hand, concealment is the intentional withholding of a material information.

One such act is dishonesty. In Gargoles v. Del Rosario, the employee – an All-Around Help – was dismissed for padding production reports in order to earn from them by pocketing the extra case.

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CASE STUDY

Gargoles v. Del Rosario

G.R. No. 158583, 10 September 2014

An act of dishonesty by an employee who has been put in charge of the employer’s money and property amounts to breach of the trust reposed by the employer, and normally leads to loss of confidence in her. Such dishonesty comes within the just and valid causes for the termination of her employment under Article 282 of the Labor Code.

x x x

The dishonesty imputed to the [employee] included the making of double entries in the production reports and thereby enriching herself by pocketing the extra cash generated from the double entries. Contrary to her assertion that there was no substantial evidence to justify her dismissal, the production reports containing the double entries were presented as evidence; and her double entries were confirmed in the affidavit executed by Redelito Caranay, Jr., her co-employee. As such, the finding of the just cause for her dismissal did not emanate from mere speculation, suspicion or assumption.

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The other acts can include tampering of daily time record, submitting fraudulent sales reports, and analogous thereto. Conversely, any similar omission or concealment may also be the basis for fraud.

b.  Breach of legal duty, trust, or confidence

2nd Requisite: The act, omission or concealment involves a breach of legal duty, trust, or confidence justly reposed.

The legal duty, trust, or confidence given by the employer to the employee could come in many forms through assigned duties and responsibilities.

For instance, employees have the legal duty to comply with the time keeping observed by the employer. If these employees falsify their time records, they’ve committed fraud against their employer. This usually happens when employees who were absent for several days; however, they would indicate in their daily time record that they were present and worked on those days in order to receive compensation.

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CASE STUDY

San Miguel Corporation v. Delen

G.R. No. 82467, 29 June 1989

[The employees – Security Guards – falsified their time records resulting in their dismissal.]

The falsification and fraud which the private respondents committed against their employer were inexcusable. [Their chief’s] initials on the false entries in their time cards did not purge the documents of their falsity. Their acts constituted dishonesty and serious misconduct, lawful grounds for their dismissal under Art. [296], sub-pars. (a) and (c), of the Labor Code, which provides:

ART. [296]. Termination by employer. An employer may terminate an employment for any of the following just causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work.

x x x

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.

In one case, a bank manager was validly dismissed after it was established that he authorized “kiting” or drawing of checks against uncollected funds in wanton violation of the bank’s policies. It was sufficient basis for the bank to lose trust in him.” (Sy v. Metropolitan Bank & Trust Company, G.R. No. 160618, 02 November 2006)

As noted by the Supreme Court, it “leans over backwards to help workers and employees continue in their employment… [Thus, the Court has] mitigated penalties imposed by management on erring employees and ordered employers to reinstate workers who have been punished enough through suspension. However, breach of trust and confidence and acts of dishonesty and infidelity in the handling of funds and properties are an entirely different matter.” (P.J. Lhuilier v. Velayo, G.R. No. 198620, 12 November 2014)

c. Against employers or their representatives

3rd Requisite: It must be committed against the employer or his/her representative.

The fraud should be committed against the employer or his/her representative. In general, representatives refer to the managerial employees and the managerial staff who act for and on behalf of the employers.

For example, stealing company properties is a theft against the employer. Due to this fraudulent act, the employer is justified in dismissing an employee for just cause. This includes even an attempted theft – meaning even if the criminal act was not completed.

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CASE STUDY

Firestone Tire and Rubber Company of the Philippines v. Lariosa

G.R. No. 70479, 27 February 1987

[An employee-tire builder was dismissed for attempted theft of flannel swabs.]

A review of the record shows that Lariosa was indubitably involved in the attempted theft of the flannel swabs. During the investigation called by the company’s industrial relations manager Ms. Villavicencio on July 28, 1983, or one day after the incident, Security Guards Liso and Olvez contradicted Lariosa’s bare claim that he had no intention to bring home the swabs and that he had simply overlooked that he had earlier placed them inside his bag after they were given to him by his shift supervisor while he was busy at work. Guard Olvez stated that when he confronted Lariosa with the swabs, the latter replied that they were for “home use.” And when he requested Lariosa to stay behind while he reported the matter to the authorities, Lariosa refused and hurriedly left the premises and boarded a passing jeepney.

From the records, it is likewise clear that Firestone did not act arbitrarily in terminating Lariosa’s services. On the contrary, there are transcripts to prove that an investigation of the incident was promptly conducted in the presence of the employee concerned, the union president and the security guards who witnessed the attempted asportation. Records also belie the allegation that Lariosa was shown his walking papers on the very day of the incident. The letter of Ms. Villavicencio to Lariosa dated August 1, 1983 informing the latter of his dismissal effective August 2, 1983 conclusively shows that he was discharged only on August 2, 1983, after an investigation was held to ventilate the truth about the July 27 incident…

There is no gainsaying that theft committed by an employee constitutes a valid reason for his dismissal by the employer. Although as a rule this Court leans over backwards to help workers and employees continue with their employment or to mitigate the penalties imposed on them, acts of dishonesty in the handling of company property are a different matter.

Thus, under Article [296] of the Labor Code, an employer may terminate an employment for “serious misconduct” or for “fraud or willful breach by the employee of the trust reposed in him by his employer or representative.”

If there is sufficient evidence that an employee has been guilty of a breach of trust or that his employer has ample reasons to distrust him, the labor tribunal cannot justly deny to the employer the authority to dismiss such an employee.

As a tire builder, Lariosa was entrusted with certain materials for use in his job. On the day in question, he was given two bundles of wool flannel swabs [ten pieces per bundle] for cleaning disks. He used four swabs from one pack and kept the rest [sixteen pieces] in his “blue travelling bag.” Why he placed the swabs in his personal bag, which is not the usual receptacle for company property, has not been satisfactorily explained.

If Lariosa, by his own wrong-doing, could no longer be trusted, it would be an act of oppression to compel the company to retain him, fully aware that such an employee could, in the long run, endanger its very viability.

The employer’s obligation to give his workers just compensation and treatment carries with it the corollary right to expect from the workers adequate work, diligence and good conduct.

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On the other hand, if a rank-and-file employee commits fraud to a co-employee (swindled the latter for a sum), this incident would not fall under this just cause on fraud for termination as it specifically should be done against the employer or his/her representative. However, it may be considered as an analogous cause to serious misconduct – as in theft of against a co-employee. (Cosmo Bottling Corp. v. Fermin, G.R. No. 193676, 29 June 2012)

d. In connection with employees’ work

4th Requisite: It must be in connection with the employees’ work.

This last requisite specifically requires that the fraudulent act, omission, or concealment should be in line with the employees’ work. For example, a sales officer who made a fraudulent sales report to receive a higher commission – is guilty of fraud. The act of making a fraudulent sales report is in line with the sales officer’s work.

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CASE STUDY

Philippine Airlines, Inc. v. Sangel

G.R. No. 83834, 30 June 1989

[The employee – Cargo Representative – was dismissed for using a defective weighing scale defrauding the airline and thereby benefitting the shipper.]

There is no doubt that the Stuttgart shipment was underweighed by Sangel. Sangel’s supervisor, Jesus T. Madrid, in his sworn statement… declared that when he required Sangel to submit a handling report as required by Ralph Duran, Manager of the Export Division, regarding the weight discrepancy — “Mr. Sangel verbally told me that he used one of the electronic weighing scales which according to him was defective at the time of the shipment.” … The use by Sangel of a weighing scale which he knew to be defective (possibly tampered) at the time of the shipment in order to benefit the shipper and defraud the airline, constituted serious misconduct and dishonesty justifying his dismissal from the service. With regard to the second airway bill where the recorded weight of 2,520 kilos was erased and substituted with 2,200 kilos…, Sangel’s denial of having made the alteration (for he allegedly could have simply entered the understated weight of the cargo on the airway bill instead of recording the correct weight [2,520 kilos] and then changing the figures to 2,220 kilos) was shattered by Abundio, the representative of the cargo forwarder, who stated in his affidavit… that it was he, not Sangel, who typed the correct weight in the airway bill.

x x x

Sangel lied when he alleged that it was he who recorded the correct weight of 2,520 in the airway bill and that someone else must have changed it in the Manifesting Section. The fact is that the underweighing was discovered precisely in the Manifesting Section.

We [the Supreme Court] find ourselves unable to agree with the Commission’s finding that PAL acted with malice and bad faith in conducting the “fact-finding interview” to fish for evidence against employees who were suspected of involvement in the underweighing anomalies at its International Cargo Terminal… PAL may not be accused of bad faith and malice for trying to ferret out the culprits responsible for the shenanigans in its international cargo department. The fraudulent underweighing of cargo not only robs PAL of substantial revenues from this particular field of its operations, but, more importantly, it endangers the safety of the airline’s aircraft and passengers. PAL must be vigilant to protect its airplanes, its passengers, and its business for, as a carrier, it has the obligation to exercise extraordinary diligence to safely conduct its passengers and cargo to their destinations (Art. 1733, Civil Code). Its efforts to discharge that grave responsibility may not be characterized as malicious or in bad faith.

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On the other hand, if an administrative assistant fraudulent declares that he/she watched a championship basketball game to please the employer who loves the sport, then such conduct would not warrant the application of fraud to justify dismissal from employment. While it was a case of dishonesty, it was not work-related.

In Felix v. Enertech Systems Industries, Inc., the employee – an Installer – was dismissed for making fraudulent entries in his time cards. “Falsification of time cards constitutes serious misconduct and dishonesty or fraud, which are just causes for the termination of employment under Art. 282(a) [on Serious Misconduct] and (c) of the Labor Code [Fraud]…” (Felix v. Enertech Systems Industries, Inc., G.R. No. 142007, 28 March 2001)