Breach of Company Policy in Employee Termination: Due Process Lessons from SURNECO v. Gonzaga

The Supreme Court has long held that an employee may be dismissed only for a just or authorized cause and only after due process. But what happens when the dismissal is valid and the employer still violates its own internal rules? In Surigao del Norte Electric Cooperative, Inc. v. Gonzaga (G.R. No. 187722, June 10, 2013), the Court answered that question by awarding nominal damages to a dismissed employee whose termination was justified — but procedurally flawed.

The Facts of the Case

Teofilo Gonzaga worked as a lineman for the Surigao del Norte Electric Cooperative, Inc. (SURNECO) starting in 1993. In February 2000, he was assigned as a temporary teller at the cooperative's sub-office in Gigaquit, Surigao del Norte.

In June 2001, SURNECO's general manager issued a memorandum ordering Gonzaga to explain alleged remittance shortages totaling P314,252.23 covering February 2000 to May 2001. Gonzaga denied the shortages and submitted an audit opinion from his own accountant questioning the internal auditor's report.

SURNECO formed an investigation committee. Gonzaga attended the proceedings, and he was placed on preventive suspension. The committee later found him guilty of gross and habitual neglect of duty, misappropriation of cooperative funds, and failure to remit collections under the cooperative's Code of Ethics. He was dismissed in November 2001.

The Ruling on the Validity of the Dismissal

Gonzaga filed a complaint for illegal dismissal. The labor arbiter ruled in his favor, but the National Labor Relations Commission (NLRC) reversed and upheld the dismissal. The Court of Appeals then reinstated the labor arbiter's ruling, prompting SURNECO to elevate the case to the Supreme Court.

The Supreme Court ruled that the dismissal was valid. In termination cases, the employer bears the burden of proving a just cause by substantial evidence — the amount of relevant evidence a reasonable mind would accept as adequate to support a conclusion. The Court found that the collection report, the summaries of collections and remittances, and a later independent audit report sufficiently established the shortages. Gonzaga's bare denials could not overcome this evidence.

The Court also noted that Gonzaga himself admitted he failed to remit collections daily, in violation of company policy. This admission, together with the evidence of shortages, constituted serious misconduct and gross and habitual neglect of duty — just causes for termination under what is now Article 296 of the Labor Code.

The Procedural Requirements for Dismissal

Even with a valid cause, an employer must observe due process. Under the Omnibus Rules Implementing the Labor Code, termination for just cause requires:

• A first written notice specifying the grounds for termination and giving the employee a reasonable opportunity to explain;
• A hearing or conference where the employee may respond to the charges, present evidence, or rebut the evidence against him; and
• A second written notice informing the employee of the termination and the grounds for it.

The Court found that SURNECO complied with these statutory requirements. The original memorandum notified Gonzaga of the cash shortage charge and gave him time to explain. An investigation committee conducted proceedings in which he participated with the assistance of an accountant and counsel. A final notice of termination cited the specific provisions of the Code of Ethics he violated.

The Court also held that while the exact grounds for dismissal were not spelled out in the first memorandum, they were implicit in the charge of cash shortage. Because the infractions shared the same core — the loss of money the employee was accountable for — Gonzaga could not have been misled in preparing his defense.

When Company Policy Creates a Binding Obligation

The pivotal issue was SURNECO's own Code of Ethics. Section 16.5 of that code required a formal investigation, including cross-examination of witnesses. Instead, SURNECO conducted only an informal inquiry.

Citing Perez v. Philippine Telegraph and Telephone Company (G.R. No. 152048, April 7, 2009), the Court explained that a formal hearing becomes mandatory when a company rule or practice requires it. Company policies that regulate the procedure for termination are binding on the employer.

Because SURNECO failed to follow its own rules, the Court found a violation of Gonzaga's rights — not statutory this time, but contractual in source. Applying the doctrine in Agabon v. NLRC (G.R. No. 158693, November 17, 2004), the Court held that a dismissal for just cause is not nullified by a procedural defect, but the employer must pay indemnity. SURNECO was ordered to pay Gonzaga P30,000 in nominal damages.

The general manager was not held solidarily liable, as there was no showing of bad faith or gross negligence on his part.

Practical Takeaways

• A valid cause is not enough. An employer must still follow the required notices and hearing, or risk paying nominal damages.
• Company rules bind the employer. If an internal policy requires a formal investigation or hearing, skipping it is a procedural violation even if the dismissal is justified.
• The first notice must be clear enough. Grounds implied in the charge — such as cash shortage — may suffice if they share a direct and logical relation with the stated dismissal grounds.
• Evidence rules are relaxed in labor cases. Employers need not present every receipt when documents are voluminous; substantial evidence of the general result may be enough.
• Nominal damages have a price tag. A procedural breach in an otherwise valid dismissal typically results in P30,000 in nominal damages under current jurisprudence.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.