It is very important to completely and fully understand the concept of management prerogative to thoroughly understand Labor Law. After all, this is essentially the very right of the employer recognized by no less than the law on labor and employment.
“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. The only limitations to the exercise of this prerogative are those imposed by labor laws and the principles of equity and substantial justice.” (Rural Bank of Cantilan, Inc. v. Julve, G.R. No. 169750, 27 February 2007)
To emphasize, it is the employer’s right to regulate “all aspects of employment.” To be clear, from hiring to firing, and everything in between, the employer has the right to regulate employment via policies, regulations, and practices, among others.
Coca-Cola Export Corporation v. Gacayan
G.R. No. 149433, 15 December 2010
The employer’s right to conduct the affairs of its business, according to its own discretion and judgment, is well-recognized. An employer has a free reign and enjoys wide latitude of discretion to regulate all aspects of employment, including the prerogative to instill discipline in its employees and to impose penalties, including dismissal, upon erring employees. This is a management prerogative, where the free will of management to conduct its own affairs to achieve its purpose takes form. The only criterion to guide the exercise of its management prerogative is that the policies, rules and regulations on work-related activities of the employees must always be fair and reasonable and the corresponding penalties, when prescribed, commensurate to the offense involved and to the degree of the infraction.
By virtue of this management prerogative, “courts often decline to interfere in legitimate business decisions of employers.” (Mendoza v. Rural Bank of Lucban, G.R. No. 155421, 07 July 2004)
Every company has its own challenges that it has to overcome. Thus, the employer should be given sufficient leeway to run and manage its operations to ensure the success of the business.
“Indeed, labor laws discourage interference in employers’ judgments concerning the conduct of their business. The law must protect not only the welfare of employees, but also the right of employers.” (Ibid.)
Accordingly, the proper framework for human resource management should be to understand that management prerogative is the general rule and labor laws/rules are the exceptions/limitations.
This crucial knowledge is empowering to employers who understand the significance of mastering management prerogative. Whereas many have it backwards placing labor laws/rules as the general rule. As a result, these employers end up losing their wide freedom to regulate all aspects of employment incorrectly thinking that they have to find a legal basis for their actions in labor laws and regulations.
The purpose of labor laws and rules are to provide for the minimum standards to be observed and complied by the employer. For example, just cause termination requires the observance of at least 2 notices (1st and 2nd written notices) and an ample opportunity to be heard in favor of the employee (written reply or administrative hearing). These are the minimum required by law.
To put into context the framework, the general rule is: an employer may dismiss an employee for just cause. The exception/limitation is: due process should be observed.
Given that the minimum required is to observe the 2 notices and an opportunity to be heard in favor of the employee, the Company may – in the exercise of its management prerogatives – choose to add more thereto in favor of the employees, such as observing 3 or 4 notices or requiring both written reply and then an administrative hearing.
Conversely, the employer should not go below the minimum required by law as it will be prejudicial to the employees. For example, the employer should not just issue a termination notice – as it will violate the 2-notice rule. If it does, then the employer may be held liable for non-compliance with labor laws.
a. Limitations of Management Prerogative
Management prerogative is evidently quite a powerful right by the employer. As such, jurisprudence has provided limitations for the exercise of such right. These limitations temper the exercise of such right and ensure that the rights of the employees are considered.
1) Good faith
First, management prerogative should be exercised in good faith. While the employer has the right to regulate all aspects of employment, it should be done in good faith. For example, an employer is justified in dismissing an employee who refuses to be transferred to a different branch if such is a business necessity (e.g. the employee’s skills and expertise is needed in the other branch). The just cause termination would be based on willful disobedience. Conversely, if there is no such justification, an employer may be held liable for illegal dismissal.
Julie Bakeshop v. Arnaiz
G.R. No. 173882, 15 February 2012
[The employees – Chief Bakers – were dismissed after their refusal to be transferred or reassigned as utility/security personnel.]
We have held that management is free to regulate, according to its own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time, place and manner of work, processes to be followed, supervision of workers, working regulations, transfer of employees, work supervision, lay off of workers and discipline, dismissal and recall of workers. The exercise of management prerogative, however, is not absolute as it must be exercised in good faith and with due regard to the rights of labor.
In constructive dismissal cases, the employer has the burden of proving that the transfer of an employee is for just or valid ground, such as genuine business necessity. The employer must demonstrate that the transfer is not unreasonable, inconvenient, or prejudicial to the employee and that the transfer does not involve a demotion in rank or a diminution in salary and other benefits. If the employer fails to overcome this burden of proof, the employee’s transfer is tantamount to unlawful constructive dismissal.
In this case, [the employers] insist that the transfer of [the employees] was a measure of self-preservation and was prompted by a desire to protect the health of the buying public, claiming that [the employees] should be transferred to a position where they could not sabotage the business pending resolution of their cases. According to [the employers], the possibility that [the employees] might introduce harmful substances to the bread while in the performance of their duties as chief bakers is not imaginary but real as borne out by what Tolores did in one of the bakeshops in Culasi, Antique where he was assigned as baker.
This postulation is not well-taken. On the contrary, [the employers] failed to satisfy the burden of proving that the transfer was based on just or valid ground. [The employers] bare assertions of imminent threat from the [the employees] are mere accusations which are not substantiated by any proof. This Court is proscribed from making conclusions based on mere presumptions or suppositions. An employee’s fate cannot be justly hinged upon conjectures and surmises. The act attributed against Tolores does not even convince us as he was merely a suspected culprit in the alleged sabotage for which no investigation took place to establish his guilt or culpability. Besides, Reyes still retained Tolores as an employee and chief baker when he could have dismissed him for cause if the allegations were indeed found true. In view of these, this Court finds no compelling reason to justify the transfer of [the employees] from chief bakers to utility/security personnel. What appears to this Court is that [the employees’] transfer was an act of retaliation on the part of [the employers] due to the former’s filing of complaints against them, and thus, was clearly made in bad faith. In fact, the employee even admitted that he caused the reassignments due to the pending complaints filed against him… (Emphasis supplied.)
2) Employee’s Rights
Second, management prerogative should be exercised with due regard to the rights of labor. Otherwise stated, the employer should ensure that labor laws – which provides for the rights of the employees – should be observed.
For instance, an employer cannot validly terminate a rank-and-file employee who refuses to render overtime work if there is no ground for compulsory overtime work. Unknown to many, DOLE rules prohibit overtime work for rank-and-file as a general rule; however, exceptions are allowed under the rule on compulsory overtime work. Thus, a rank-and-file employee has a right to refuse overtime work where none of the grounds are present. (See Last paragraph, Section 10, Rule I, Book III, Omnibus Rules Implementing the Labor Code)
Leus v. St. Scholastica’s College Westgrove
G.R. No. 187226, 28 January 2015
[The employee] was hired by St. Scholastica’s College Westgrove (SSCW), a Catholic educational institution, as a non-teaching personnel, engaged in pre-marital sexual relations, got pregnant out of wedlock, married the father of her child, and was dismissed by SSCW, in that order. The question that has to be resolved is whether the [employee’s] conduct constitutes a ground for her dismissal.
x x x
The Court has held that “management is free to regulate, according to its own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time, place and manner of work, processes to be followed, supervision of workers, working regulations, transfer of employees, work supervision, lay off of workers and discipline, dismissal and recall of workers. The exercise of management prerogative, however, is not absolute as it must be exercised in good faith and with due regard to the rights of labor.” Management cannot exercise its prerogative in a cruel, repressive, or despotic manner.
SSCW, as employer, undeniably has the right to discipline its employees and, if need be, dismiss them if there is a valid cause to do so. However, … there is no cause to dismiss the [employee]. Her conduct is not considered by law as disgraceful or immoral. Further, [the employers] themselves have admitted that SSCW, at the time of the controversy, does not have any policy or rule against an employee who engages in pre-marital sexual relations and conceives a child as a result thereof. There being no valid basis in law or even in SSCW’s policy and rules, SSCW’s dismissal of the [employee] is despotic and arbitrary and, thus, not a valid exercise of management prerogative.
In sum, the Court finds that the [employee] was illegally dismissed as there was no just cause for the termination of her employment. SSCW failed to adduce substantial evidence to establish that the [employee’s] conduct, i.e., engaging in pre-marital sexual relations and conceiving a child out of wedlock, assessed in light of the prevailing norms of conduct, is considered disgraceful or immoral. The labor tribunals gravely abused their discretion in upholding the validity of the [employee’s] dismissal as the charge against the [employee’s] lay not on substantial evidence, but on the bare allegations of SSCW. In turn, the CA committed reversible error in upholding the validity of the [employee’s] dismissal, failing to recognize that the labor tribunals gravely abused their discretion in ruling for the [employers].
Accordingly, the employer has to take note that the management prerogative has its limitations. When these restrictions are considered and factored in decision-making, the employer can take advantage of its wide latitude to regulate all aspects of employment via management prerogative.