Termination due to Loss of Trust (Theft, Fraud, etc.)

by | Sep 22, 2018 | Corporate Law, Labor Law

So, you’ve reason to believe that one of your cashiers in your Philippine office seems to have stolen some of her revolving fund.

As an HR, you are considering termination.

But can you terminate? Under what grounds and how do you do it?

This article answers those questions and gives a summary of the important points that you need to consider for termination due to fraud or willful breach.

With this and in consultation with your company lawyer, you should have a pretty good idea of how to correct apply the law.

Overview

Let’s go through a bit of a crash course on the law.

This section introduces the pertinent part of the Philippine Labor Code that you’ll need.

It also shows the criteria the court considers when evaluating this type of case.

Art 296 (formerly 282) of the Labor Code allows the termination of an employee for loss of confidence.

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

Loss of confidence has been defined by jurisprudence and occurs when:

  1. The employee concerned must be holding a position of trust and confidence and
  2. There must be an act that would justify the loss of trust and confidence.

You’ll find that the Supreme Court has elaborated on the first requirement before [G.R. 118506, Apr 18, 1997] and that this has continued to be cited.

It stated that there are 2 classes of employees:

  1. Employees who occupy positions of trust and confidence are managerial employees, i.e., those vested with the powers or prerogatives to lay down management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees or effectively recommend such managerial actions;
  2. Employees who are routinely charged with the care and custody of their employer’s money or property are cashiers, auditors, property custodians, etc., or those who, in the normal and routine exercise of their functions, regularly handle significant amounts of money or property.

The Court has also discussed what kind of act falls under the second requirement.

1. It must be related to his duties

For breach of trust and confidence to become a valid ground for the dismissal of an employee, the cause of loss of trust and confidence must be related to the performance of the employee’s duties. [G.R. No. 169564, Apr 6, 2011]

2. Willful breach of trust and founded on clearly established facts

Such breach is willful if it is done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. Moreover, it must be based on substantial evidence and not on the employer’s whims or caprices or suspicions otherwise, the employee would eternally remain at the mercy of the employer. [G.R. 198620, Nov 2014]

You should note that in cases such as this, the Court specifically doesn’t allow separation pay.

Well-settled is the rule that separation pay shall be allowed only in those instances where the employee is validly dismissed for causes other than serious misconduct or those reflecting on his moral character. Inasmuch as the reason for which the petitioner was validly separated involves his integrity, which is especially required for the position of the purser, he is not worthy of compassion as to deserve at least separation pay for his length of service. [G.R. 148410, Jan 17, 2005]

Now that you’ve got a bird’s eye view of what the law considers, let’s look at each in a bit more detail.

Employees Holding Positions of Trust and Confidence

You might be wondering who are employees who hold a position of trust and confidence.

I’ve listed them above but for easy reference:

  1. Employees who occupy positions of trust and confidence are managerial employees
  2. Employees who are routinely charged with the care and custody of their employer’s money or property.

Just to illustrate employees who hold a position of trust and confidence, let’s take see the jurisprudence.

A recent case which comes to mind is P.J. Lhuillier vs. Velayo. [G.R. No. 198620, Nov 12, 2014].

Here, the Supreme Court found the dismissal of Ms. Velayo valid and pointed out that her “misconduct must be viewed in light of the strictly fiduciary nature of her position.”

She was a cashier who hid an overage of Php 540 pesos and correspondingly covered it up.

The Court of Appeals and the National Labor Relations Committee said that this was a simple error.

The Supreme Court disagreed.

In holding a position requiring full trust and confidence, the respondent gave up some of the rigid guarantees available to ordinary employees. She insisted that her misconduct was just an “innocent mistake,” and maybe it was, had it been committed by other employees.

Another good example for you would be Philippine Plaza Holdings vs. Ma. Flora M. Episcope [G.R. 192826, Feb 27, 2013].

Ma. Flora M. Episcope was a waitress at Westin Hotel and was responsible for bringing discount cards to the cashier and presenting the discounted bill to the guests.

Instead of presenting the discounted bill to the guests, she gave them the original bill and pocketed the discount.

The Supreme Court supported her dismissal.

“Being therefore involved in the handling of company funds, Episcope is undeniably considered an employee occupying a position of trust and confidence and as such, was expected to act with utmost honesty and fidelity.”

The Court has defined several positions as being one of trust and confidence, including warehousemen, salesmen, bank tellers, data custodians and cashiers among others.

You might be wondering why the law goes into some detail about positions of trust and confidence.

Well, you cannot dismiss for loss of trust and confidence if the position doesn’t have any function that requires trust.

In addition, there is a higher standard of behavior expected of management personnel.

Since more is expected of them, you’ll find the law holds them to a higher standard.

…with respect to rank-and-file personnel, loss of trust and confidence, as ground for valid dismissal, requires proof of involvement in the alleged events in question, and that mere uncorroborated assertions and accusations by the employer will not be sufficient. But as regards a managerial employee, the mere existence of a basis for believing that such employee has breached the trust of his employer would suffice for his dismissal [G.R. 208321, Jul 30, 2014]

This doesn’t mean that you just fire based on belief however.

You’ll still need reasonable grounds to believe that there has been a breach of confidence.

Related to his Duties

The Supreme Court also has stated that the dismissal must be in connection with the employee’s duties.

In an early case, you can see that the Supreme Court found that the bank teller was wrongly held liable for trust and guarantees. [G.R. 167716, Mar 23, 2006]

This was actually the bank branch manager’s duty and so the company was found guilty of illegal dismissal.

You also clearly see it in the more recent case of Lima Land vs. Cuevas [G.R. 169523, Jun 16, 2010].

The company stated that she did not exercise due diligence in inquiring about the status of the collections, leading to remittance differences.

The Court said that the irregularities were principally the collection supervisor’s duty and he should be the one actually held accountable.

As such, the court also found it a case of illegal dismissal.

Willful Breach of Trust

You’ll also have to make sure that the act on which the dismissal is based should be willful.

Willful breach is when it is clear that an employee is knowingly and deliberately acting other than he should.

In Alvarez vs. Golden Tri Bloc [G.R. 202158, Sept 25, 2013], a supervisor was dismissed after asking another employee to punch in his timecard for him.

The employee was dismissed for loss of trust.

The Supreme Court agreed with his dismissal because he had been previously disciplined several times for infractions.

In fact, he had been suspended before for asking another employee to punch in his timecard. He’d also been warned that he would be dismissed if he did it again.

He tried to claim that he had never been disciplined in his time with the company. However, the company presented several previous disciplinary actions.

Stating that he had deliberately misled the labor tribunals and that repetition of an offense clearly indicated willfulness, the Court upheld his dismissal.

Contrast this with the case of Sulpicio Lines vs. Gulde [G.R. No. 149930, February 22, 2002].

Gulde was dismissed as the company stated that he had worked with thieves to steal 4 basketballs.

The Supreme Court said that his case was one of illegal dismissal.

It quoted the Court of Appeals:

[I]t can be gleaned that the evidence presented in the case did not clearly prove that petitioner willfully breach his duty. It was not proven the indeed he connived with the thieves.

Willful breach is a very important consideration in this case, and you’ll need to prove it.

Substantial Evidence

Also, you’ll need sufficient evidence for the dismissal to be valid.

There are several levels of evidence but the Court only requires evidence to be “substantial …founded on clearly established facts” [G.R. 149930, Feb 22, 2002] in dismissal cases.

You’ll have to present proof for your reason for dismissal.

The Supreme Court has found illegal dismissal in cases where insufficient evidence was found to support the claim.

For instance, while Marlyn Cuevas was remiss in her duties the court dismissed other allegations for being unsubstantiated [G.R. 169523, Jun 16, 2010].

The company had accused her of irregularities in her approval of reimbursements and that insufficient accounting standards were followed leading to further irregularities in the Petty Cash Fund.

In the words of the Court:

Indeed, the consistent rule is that if doubts exist between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter. The employer must affirmatively show rationally adequate evidence that the dismissal was for justifiable cause. Thus, when the breach of trust or loss of confidence alleged is not borne by clearly established facts, as in this case, such dismissal on the cited grounds cannot be allowed.

Summary

So going back to that cashier suspected of stealing from her revolving fund at the beginning of this article, yes you can terminate.

It’s clearly a position of trust and part of her duties to remit the cash to her employer.

You will have to present substantial proof that this was willful.

You will also have to follow due process, but this is a very clear cut case of loss of trust. and confidence.

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