Loss of Trust and Confidence as a Just Cause for Dismissal: When Employers Can Terminate

The Supreme Court has long recognized that an employer may dismiss an employee who holds a position of trust when that trust is breached. But the rules are not the same for all employees. A recent ruling involving a university treasurer clarifies when dismissal for loss of trust and confidence is valid—and when it is not. The case also reminds employers that the ground cannot be used as a shield for arbitrary action.

The Case of the University Treasurer

Nowella Reyes was the University Treasurer of Wesleyan University-Philippines. She handled and supervised all monetary transactions and was the highest custodian of the school's funds. After a new Board of Trustees was constituted, an external audit revealed several irregularities in the Treasury Department: checks payable to teachers and staff were being encashed directly by the Treasury, crossed checks payable to the Treasurer were negotiated for encashment despite restrictions on their face, and there were unliquidated cash advances amounting to millions of pesos.

Reyes was served a Show Cause Order and placed under preventive suspension. After investigation, she was dismissed. She filed a complaint for illegal dismissal, which the Labor Arbiter initially granted. The National Labor Relations Commission reversed, and the Court of Appeals reinstated the Labor Arbiter's ruling. The Supreme Court ultimately sided with the university.

The Two Requisites for Valid Dismissal

Under Article 282(c) of the Labor Code, an employer may terminate an employee for "fraud or willful breach by the employee of the trust reposed in him by his employer." The Supreme Court has laid down two requisites for a valid dismissal based on loss of trust and confidence:

First, the employee must hold a position of trust and confidence. There are two classes: managerial employees, who lay down policies and exercise discretion; and fiduciary rank-and-file employees, such as cashiers, auditors, and property custodians, who regularly handle significant amounts of money or property.

Second, the loss of confidence must be based on a willful breach of trust, founded on clearly established facts. The ground cannot be simulated or used as a subterfuge for improper or unjustified causes.

Different Standards for Different Employees

The Court distinguished between managerial and rank-and-file employees. For rank-and-file personnel, the employer must prove the employee's involvement in the alleged events. Mere uncorroborated assertions will not suffice.

For managerial employees, however, the standard is lower: the mere existence of a basis for believing that the employee breached the employer's trust is enough. Proof beyond reasonable doubt is not required.

What the Court Found in This Case

The Court found that Reyes held a position of trust—she handled significant amounts of money and managed a critical department. More importantly, the Court found that her breach was proven, not merely suspected.

Reyes admitted encashing a crossed check payable to the University Treasurer. The Court noted that crossing a check means it may only be deposited, not encashed. As Treasurer, she was expected to know this basic banking rule. The Court also found that her department encashed checks issued to personnel, violating the imprest system of cash management, and that unliquidated cash advances remained even bigger before the responsibility was transferred to another office.

The Court rejected Reyes' defense that these were "practices of the previous administration." It called this a "convenient excuse" and a "poorly disguised afterthought."

Practical Takeaways

• Loss of trust and confidence is a valid ground for dismissal, but only when the employee holds a position of trust and the breach is founded on clearly established facts.
• The standard of proof differs by position. For managerial employees, a reasonable basis for believing a breach occurred may suffice. For rank-and-file employees, actual involvement must be shown.
• Employers must document irregularities. An external audit report, investigation report, and evidence of specific acts will strengthen a dismissal case.
• Employees defending against dismissal should not rely on "past practice" excuses when the practice itself violates established rules or management's clear instructions.
• The crossing of a check is a legal restriction. Encashing a crossed check, even for legitimate purposes, can be treated as a breach of trust by an employee who handles company funds.

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