Management Prerogative

Management prerogative is the general rule; Labor Law is the exception.

Summary

▪ Management prerogative is the inherent right of the employer to regulate all aspects of employment.

▪ There are two limitations to management prerogative: (a) good faith, and (b) employee rights.

1. Concept

“Management prerogative” – refers to the employer’s bundle of rights in relation to all aspects of employment, from pre-employment to post-employment, and everything in between.

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)

As a privilege inherent in the employer’s right to control and manage its enterprise effectively, its freedom to conduct its business operations to achieve its purpose cannot be denied. (Peckson v. Robinsons Supermarket Corporation, G.R. No. 198534, 03 July 2013)

Management prerogative is a function associated with the employer’s inherent right to control and manage effectively its enterprise.  Even as the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what are clearly management prerogatives. The free will of management to conduct its own business affairs to achieve its purpose cannot be denied. (SCA Hygiene Products Corporation Employees Association-FFW v. SCA Hygiene Products Corporation, G.R. No. 182877, 09 August 2010)

a. Business judgment rule

The Supreme Court “is mindful that every business strives to keep afloat during these times when prevailing economic situations turns such endeavor into a near struggle. With as much latitude as our laws would allow, the Court has always respected a company’s exercise of its prerogative to devise means to improve its operations. Thus, 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. Further, management retains the prerogative, whenever exigencies of the service so require, to change the working hours of its employees.” (Unicorn Safety Glass, Inc. v. Basarte, G.R No. 154689, 25 November 2004)

Jurisprudence recognizes the exercise of management prerogatives. Labor laws also discourage interference with an employer’s judgment in the conduct of its business. For this reason, the Court often declines to interfere in legitimate business decisions of employers. The law must protect not only the welfare of employees, but also the right of employers. (Endico v. Quantum Foods Distribution Center, G.R. No. 161615, 39 January 2009)

It is a well-settled rule that labor laws do not authorize interference with the employer’s judgment in the conduct of its business.  The Labor Code and its implementing rules do not vest managerial authority in the labor arbiters or in the different divisions of the National Labor Relations Commission or in the courts. (SCA Hygiene Products Corporation Employees Association-FFW v. SCA Hygiene Products Corporation, G.R. No. 182877, 09 August 2010)

In this light, courts often decline to interfere in legitimate business decisions of employers. In fact, labor laws discourage interference in employers’ judgment concerning the conduct of their business. (St. Luke’s Medical Center, Inc. v. Sanchez, G.R. No. 212054, 11 March 2015)

The Supreme Court has consistently refused to interfere with the exercise by management of its prerogative to regulate the employees’ work assignments, the working methods and the place and manner of work… As we all know, there are various laws imposing all kinds of burdens and obligations upon the employer in relation to his employees, and yet as a rule (the Supreme Court) has always upheld the employer’s prerogative to regulate all aspects of employment relating to the employees’ work assignment, the working methods and the place and manner of work. Indeed, labor laws discourage interference with an employer’s judgment in the conduct of his business.” (Peckson v. Robinsons Supermarket Corporation, G.R. No. 198534, 03 July 2013)

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. (Mendoza v. Rural Bank of Lucban, G.R. No. 155421, 07 July 2004)

b. Framework

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.

3. Limitations

Management prerogative are “not magic words uttered by an employer to bring him to a realm where our labor laws cannot reach.” (SPI Technologies, Inc. v. Mapua, G.R. No. 191154, 07 April 2014)

The exercise of management prerogative is not absolute. By its very nature, encompassing as it could be, management prerogative must be exercised in good faith and with due regard to the rights of labor—verily, with the principles of fair play at heart and justice in mind. While we concede that management would best know its operational needs, the exercise of management prerogative cannot be utilized as an implement to circumvent our laws and oppress employees. The prerogative accorded management cannot defeat the very purpose for which our labor laws exist: to balance the conflicting interests of labor and management, not to tilt the scale in favor of one over the other, but to guaranty that labor and management stand on equal footing when bargaining in good faith with each other.” (Unicorn Safety Glass, Inc. v. Basarte, G.R No. 154689, 25 November 2004)

While the law recognizes and safeguards this right of an employer to exercise what are clearly management prerogatives, such right should not be abused and used as a tool of oppression against labor. The company’s prerogatives must be exercised in good faith and with due regard to the rights of labor. A priori, they are not absolute prerogatives but are subject to legal limits, collective bargaining agreements and the general principles of fair play and justice. (The Orchard Golf and Country Club v. Francisco, G.R. No. 178125, 18 March 2013)

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. But the exercise of a management prerogative like this is not limitless, but hemmed in by good faith and a due consideration of the rights of the worker.24 In this light, the management prerogative will be upheld for as long as it is not wielded as an implement to circumvent the laws and oppress labor. (Dongon v. Rapid Movers and Forwarders Co., Inc., G.R. No. 163431, 28 August 2013)

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.

There are thus main limitations to management prerogative:

1) Good faith, and,

2) Employee rights.

Hence, for management prerogative to be validly exercised, these two limitations should be observed. If they are not complied, then there may be a finding of a labor law violation.

a. 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.

In a case, the dismissal of a utility man, who was separated from service due to his refusal to transfer, was held valid after it was established that the company was acting in good faith when it implemented a reorganization plan to address financial difficulties and after due process was observed.

Pantoja v. SCA Hygiene Products Corporation
G.R. No. 163554, 23 April 2010
In this case, the abolishment of Paper Mill No. 4 was undoubtedly a business judgment arrived at in the face of the low demand for the production of industrial paper at the time. Despite an apparent reason to implement a retrenchment program as a cost-cutting measure, respondent, however, did not outrightly dismiss the workers affected by the closure of Paper Mill No. 4 but gave them an option to be transferred to posts of equal rank and pay. As can be seen, retrenchment was utilized by respondent only as an available option in case the affected employee would not want to be transferred. Respondent did not proceed directly to retrench. This, to our mind, is an indication of good faith on respondent’s part as it exhausted other possible measures other than retrenchment. Besides, the employer’s prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means have been tried and found wanting. Giving the workers an option to be transferred without any diminution in rank and pay specifically belie petitioner’s allegation that the alleged streamlining scheme was implemented as a ploy to ease out employees, thus, the absence of bad faith. Apparently, respondent implemented its streamlining or reorganization plan with good faith, not in an arbitrary manner and without prejudicing the tenurial rights of its employees.

On the other hand, the dismissal of an account executive prior to the end of his probationary employment on the ground of failure to “non-satisfactory performance”, was held to be illegal due to lack of good faith in designing the sales quota and failure to comply with due process.

Aliling v. Feliciano
G.R. No. 185829, 24 April 2012
In fine, an employee’s failure to meet sales or work quotas falls under the concept of gross inefficiency, which in turn is analogous to gross neglect of duty that is a just cause for dismissal under Article 282 of the Code. However, in order for the quota imposed to be considered a valid productivity standard and thereby validate a dismissal, management’s prerogative of fixing the quota must be exercised in good faith for the advancement of its interest. The duty to prove good faith, however, rests with WWWEC as part of its burden to show that the dismissal was for a just cause. WWWEC must show that such quota was imposed in good faith. This WWWEC failed to do, perceptibly because it could not. The fact of the matter is that the alleged imposition of the quota was a desperate attempt to lend a semblance of validity to Aliling’s illegal dismissal. It must be stressed that even WWWEC’s sales manager, Eve Amador (Amador), in an internal e-mail to San Mateo, hedged on whether petitioner performed below or above expectation…

b. Employee 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)

Managerial prerogatives, however, are subject to limitations provided by law, collective bargaining agreements, and general principles of fair play and justice. (Endico v. Quantum Foods Distribution Center, G.R. No. 161615, 39 January 2009)

Otherwise stated, the employee’s bundle of rights consists of those provided for by law, contract, company policies, collective bargaining agreement, other employment agreements, and general principles of fair play and justice. (Ibid.)

For instance, the managerial prerogative to transfer personnel must be exercised without grave abuse of discretion. It must always bear in mind the basic elements of justice and fair play. Having the right must not be confused with the manner that right is exercised. Thus, it cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. (Globe Telecom, Inc. v. Lazaro, G.R. No. 150092, 27 September 2002)

Where chief bakers were transferred to utility/security personnel after they filed a labor complaint for monetary claims, the employer was held liable for unlawful transfer.

Julie’s Bakeshop v. Arnaiz
G.R. No. 173882, 15 February 2012
In the case at bench, [the Employer] failed to justify [the Employees’] transfer from the position of chief bakers to utility/security personnel. We find that the threat being alluded to by [the Employer] – that [the Employees] might introduce harmful foreign substances in baking bread – is imaginary and not real. We recall that what triggered [the Employees’] reassignment was the filing of their complaints against [the Employer] in the NLRC. [The Employees] were not even given an opportunity to refute the reason for the transfer. The drastic change in [the Employees’] nature of work unquestionably resulted in, as rightly perceived by them, a demeaning and humiliating work condition. The transfer was a demotion in rank, beyond doubt. There is demotion when an employee is transferred from a position of dignity to a servile or menial job. One does not need to stretch the imagination to distinguish the work of a chief baker to that of a security cum utility man… We agree with the CA in ruling that the transfer of [the Employees] amounted to a demotion. Although there was no diminution in pay, there was undoubtedly a demotion in titular rank. One cannot deny the disparity between the duties and functions of a chief baker to that of a utility/security personnel tasked to clean and manage the orderliness of the outside premises of the bakeshop. [The Employees] were even prohibited from entering the bakeshop. The change in the nature of their work undeniably resulted to a demeaning and humiliating work condition.

References

Presidential Decree No. 442, a.k.a. Labor Code of the Philippines

Disclaimer: All information is for educational and general information only. These should not be taken as professional legal advice or opinion. Please consult a competent lawyer to address your specific concerns. Any statements or opinions of the author are solely his own and do not reflect that of any organization he may be connected.

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