Breach of Trust as Ground for Dismissal: Manager's Dishonest Dealings Upheld

The Supreme Court, in Vilchez v. Free Port Service Corporation (G.R. No. 183735, July 6, 2015), affirmed the dismissal of a security department manager who failed to account for company funds entrusted to him for the procurement of security guard licenses. The case clarifies when an employer may validly terminate an employee on the ground of loss of trust and confidence, and why retirement during a pending case does not erase prior misconduct.

The Facts of the Case

Segifredo Vilchez was the Physical Security Department Manager of Free Port Service Corporation (FSC), a subsidiary of the Subic Bay Metropolitan Authority. In March 1999, he advised management of the need to secure licenses for 159 security officers and volunteered to take full responsibility for procuring them. He requested P127,200.00 for the licenses, NBI clearances, psychiatric tests, and drug tests.

FSC prepared Disbursement Voucher No. 04308 payable to a certain Col. Angelito Gerangco, whom Vilchez recommended. Vilchez certified that the expenses were necessary and incurred under his direct supervision, and he signed as the one who received the check.

Two years later, the licenses had not been fully secured. The Commission on Audit (COA) issued a Notice of Suspension because Gerangco was not a designated disbursing officer. Despite repeated memoranda, Vilchez failed to settle the suspension or account for the funds. He was dismissed on May 10, 2001 for serious misconduct resulting in loss of trust and confidence.

The Issue Before the Court

The central question was whether Vilchez's dismissal was valid. Vilchez argued that he should not be held liable because the check was made payable to Gerangco, who encashed it and failed to deliver the licenses. He also claimed that his mandatory retirement during the pendency of the case rendered the dismissal issue moot.

The Ruling: Dismissal Was Valid

The Supreme Court upheld the dismissal, applying the two-part test for loss of trust and confidence as a just cause for termination.

First, the employee must hold a position of trust and confidence. The Court found no doubt that Vilchez, as Physical Security Department Manager overseeing about 800 people, held such a position.

Second, there must be an act justifying the loss of trust and confidence. The Court ruled that Vilchez's failure to produce the licenses for two years and his inability to account for the money received constituted a willful breach of the trust reposed in him. The Court noted that Vilchez himself recommended Gerangco, certified the expenses as necessary and lawful, and signed as the recipient of the check. He could not simply blame Gerangco when it was Vilchez who had the obligation to secure the licenses.

The Court also found that Vilchez's belated letter to Gerangco, written only after the administrative case was initiated, showed a lack of fidelity to duty. His continued refusal to comply with memoranda to settle the COA suspension further justified the employer's loss of confidence.

Retirement Does Not Erase Prior Misconduct

The Court rejected Vilchez's argument that his mandatory retirement during the appeal rendered the case moot. Citing the principle in Office of the Ombudsman v. Dechavez, the Court held that retirement from service during the pendency of a case does not absolve an employee of wrongdoing committed while in service.

The validity of the dismissal had to be resolved because it determined whether Vilchez was entitled to backwages and retirement benefits. Since his termination was valid, there was no basis for reinstatement or backwages, and consequently no earned retirement benefits under the law.

Practical Takeaways

• Loss of trust and confidence requires two elements: the employee must hold a position of trust, and there must be an act that justifies the employer's loss of confidence in that employee.
• Managers and supervisors are positions of trust — their failure to account for funds or perform represented tasks can justify dismissal.
• An employee cannot escape liability by blaming a third party when the employee recommended that party, certified the transaction, and received the funds.
• Retirement or resignation during a pending case does not erase prior misconduct — the case may still be resolved to determine liability and benefits.
• Prompt compliance with audit and accounting directives is critical — failure to settle COA notices or respond to memoranda can strengthen a finding of willful breach of trust.

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