Loss of trust and confidence

The right to terminate employment based on just or authorized causes stems from a protected constitutional guarantee to employers of a reasonable return on investments. It has been recognized by the Courts that an employer cannot be compelled to retain an employee who is guilty of acts inimical to its interests.

Article 297 of the Labor Code provides that among one of the Just Causes to terminate an employee is Fraud or Willful breach by an employee of the trust reposed in him by the employer. This is known as termination of employment of the employee by reason of Loss of Trust and Confidence by the employer.

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In Labor and Employment law, the concept of Loss of Trust and Confidence involves a situation where due to certain acts and circumstances, the employer loses confidence in its employee in a way that the employer no longer considers it appropriate for the employee to continue their employment with the company.

A dismissal based on willful breach of trust or loss of trust and confidence under Article 297 of the Labor Code requires 2 conditions.

1. The employee occupies a position of trust and confidence; and
2. There is basis for the loss of trust and confidence, i.e. an act that justifies the loss of trust and confidence.

(Coca-Cola FEMSA Philippines, Inc. v. Alpuerto, GR 226089, March 4, 2020)

Kinds of Employees

Termination based on loss of trust and confidence does not only apply to Managerial Employees, who are naturally considered to occupy positions of trust and confidence and entrusted with confidential and delicate matters. It also applies to ordinary rank-and-file employees who are considered “Fiduciary Rank-and-File employees”.

These Fiduciary Rank-and-File employees are those employees, who, in the normal and routine exercise of their functions, regularly handle significant amounts of the employer’s money or property. Examples are cashiers, auditors, property custodians, selling tellers, and sales managers.

Standards for Termination

The standard of proof to justify termination of employment based on Loss of Trust and Confidence is different for Managerial Employees and Fiduciary Rank-and-File employees.

For Fiduciary Rank-and-File employees, loss of trust and confidence as ground for valid dismissal requires actual proof of involvement in the alleged events in question. Mere uncorroborated assertions and accusations by the employer is not sufficient.

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On the other hand, there is a lower standard of proof for Managerial Employees and the Supreme Court has declared that the mere existence of a basis for “believing” that such employee has breached the trust of his employer is enough to justify dismissal.

Accordingly, when the employer has reasonable ground to believe that the Managerial Employee concerned is responsible for the purported misconduct, and the nature of his participation therein renders him unworthy of the trust and confidence demanded by his position, this is enough to warrant termination from employment.

Guidelines for Loss of Confidence

Considering that loss of confidence is, by its nature, subjective and could be prone to abuse by the employer, the Supreme Court has laid down guidelines for the application of the doctrine of loss of confidence, namely:

1. The breach of trust is willfully and intentionally committed by the employee;
2. The loss of confidence on the part of the employer must be real and not simulated;
3. It should not be used as a subterfuge for causes which are improper, illegal or unjustified;
4. it should not be arbitrarily asserted in the face of overwhelming evidence to the contrary; and
5. it must be genuine, not a mere afterthought to justify earlier action taken in bad faith.

In short, there must be an actual breach of duty which must be established by substantial evidence. (Coca-Cola FEMSA Philippines, Inc. v. Alpuerto, GR 226089, March 4, 2020)

In the case of East Asia Utilities Corp., et al. v. Arenas (GR 211443, December 1, 2021) Mr. Arenas was a Shift Superintendent of the company, which was engaged in power distribution in Lapu-Lapu City, Cebu. Upon doing his rounds, he discovered Mr. Cabili, an employee, using an electric cutter on a scrapped retainer ring. Despite ordering Mr. Cabili to stop and return the item, Mr. Arenas later saw him welding and painting it to hide the damage.

Mr. Arenas discussed the incident with colleagues but did not report it to the Plant Manager. However, the Plant Manager received an anonymous text message informing him that Mr. Cabili was responsible for thefts in the plant, that Mr. Arenas knew about this and did not report it. For his part, Mr. Arenas only submitted his report after the Plant Manager was made aware of the events.

The company terminated the employment of Mr. Arenas for failing to or delaying to report the actions of Mr. Cabili and tolerating the same which prompted Mr. Arenas to file a labor complaint for illegal dismissal.

The Supreme Court declared the termination of Mr. Arenas to be valid and affirmed the Decision of the National Labor Relations Commission that the dismissal based on the loss of trust and confidence by the company in Mr. Arenas was justified and valid.

He was found to be holding a top level managerial position in the company, which means he was expected to always be on top of any situation that may occur at the plant including safeguarding company assets.

Mr. Arenas failed to maintain the trust and confidence of the company when he not only gave conflicting reasons for his failure to report the incident but showed, through his actions, that he did not intend to report Mr. Cabili. Moreover, the theft by Mr. Cabili would have been left unnoticed if not for the anonymous tip to the Plant Manager.

(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)