---

Breach of Trust in Employment: When Is Dismissal Justified?

Employers often cite "loss of trust and confidence" to justify dismissing a supervisory employee. But that phrase is not a magic wand. In Gonzales v. National Labor Relations Commission, G.R. No. 115944 (June 9, 1997), the Supreme Court reinstated a supervisor who had been dismissed over a disputed allowance, holding that the company failed to show a clear, willful breach of trust.

The case is a useful reminder that the burden of proving a just cause for dismissal rests on the employer — and that an honest misunderstanding is not the same as dishonesty.

The facts of the case

Elvira C. Gonzales began working as a supervisor at American Microsystems, Inc. (AMI-Philippines) in January 1981. In 1990, the company sent her to Japan for TAB inspection training. She later trained operators in the Philippines and headed the company's TAB inspection operations.

In late 1991, she was again sent to Japan, this time as group leader of four trainees. Her written contract provided a training allowance of US$29.60 a day, or about US$900 a month. Gonzales claimed she had been promised US$1,500 a month. While in Japan, she asked for the difference. A representative of the Japanese host company gave her an additional US$300 a month in yen and told her to accept it. Gonzales believed the amount was for her alone, as leader, and she used part of it to treat her group.

In May 1992, the company received reports that the monthly allowance was not reaching the trainees. Gonzales was required to explain an alleged misappropriation of US$1,500 within eight hours. She admitted receiving the US$300 monthly but explained she understood it to be a bonus for her role as group leader. On June 10, 1992, AMI terminated her for "defrauding or attempting to defraud" the company.

What the labor tribunals ruled

The Labor Arbiter found the dismissal illegal and ordered reinstatement with backwages and attorney's fees. On appeal, the National Labor Relations Commission reversed, finding Gonzales guilty of dishonesty and misappropriation amounting to breach of trust, given her supervisory position.

Gonzales brought the matter to the Supreme Court through a petition for certiorari.

The rule on loss of trust and confidence

The Supreme Court acknowledged that loss of trust and confidence is a just cause for termination. But it stressed that such loss must have some basis. Proof beyond reasonable doubt is not required; it is enough that there is reasonable ground to believe that the employee is responsible for the misconduct and that the nature of the participation makes the employee unworthy of the trust demanded by the position.

Crucially, the Court held that to be a valid ground for dismissal, the loss of trust and confidence must be based on a willful breach of trust. The Court cited its earlier rulings in Pepsi Co. v. NLRC (1992) and PCIB v. NLRC (1995) for these principles.

Why the dismissal failed

The Court found the basis for the loss of trust unclear. There was a genuine divergence of opinion over the US$300: Gonzales believed it was for her alone; the company claimed it was meant for the whole group. The written contract said nothing about the allowance being for the group, and no company policy or practice showed that team leaders received extra money for the benefit of their teams. The idea that the allowance was for the group surfaced only after her stint in Japan.

Her June 4, 1992 letter explained her good faith, and the Court found that explanation acceptable. It also held that her offer to return the unconsumed amount was not an admission of guilt; rather, it reinforced her claim of good faith. Given her eleven years of service, the Court could not deem the infraction an act of defrauding the company.

The Court also agreed with the Labor Arbiter that dismissal was too harsh and not commensurate with the alleged wrongdoing, especially since bad faith and malice were not clearly shown. It reversed the NLRC and reinstated the Labor Arbiter's decision.

Practical takeaways

• Loss of trust and confidence requires a willful breach. A mere mistake, misunderstanding, or honest belief in one's entitlement does not meet the standard.
• The employer bears the burden of proof. The company must show a clear factual basis for the loss of trust, not just an allegation of dishonesty.
• Written terms matter. Where a contract is silent on a disputed benefit and no company policy fills the gap, the ambiguity weakens the employer's case.
• Proportionality counts. Even where some infraction exists, dismissal may be too harsh if it is not commensurate with the offense and the employee's record.
• Length of service is a factor. A long, unblemished tenure can weigh against treating a single ambiguous incident as grounds for termination.

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