Employers Burden of Proof in Justifying Loss of Trust and Confidence in Employee Dismissal

The Supreme Court's 1996 decision in National Food Authority v. Court of Appeals (G.R. Nos. 115121-25) serves as a significant reminder to employers that terminating an employee on grounds of loss of trust and confidence requires more than a simple assertion. The case, while primarily about government procurement rules, contains important principles on the burden of proof employers must carry when dismissing employees for this just cause under the Labor Code.

The Facts of the Case

The National Food Authority (NFA), a government-owned corporation, had security service contracts with several private security agencies. In 1992, a new NFA Administrator ordered a review of all security contracts and the bidding procedures. Pending this review, the incumbent security agencies continued rendering services on a temporary basis.

In March 1993, the review was completed, and new accreditation and bidding rules were issued. The NFA created a Prequalification, Bids and Awards Committee (PBAC) to conduct public bidding for security services. However, two security agencies that failed to prequalify filed cases in court and obtained restraining orders preventing the bidding from proceeding.

During the effectivity of these court orders, the NFA Administrator sent notices of termination to all incumbent security agencies, including those that had already prequalified for the bidding. The notices stated that their services would end because their contracts had expired and they "no longer enjoyed the trust and confidence" of the NFA. The NFA then contracted seven new security agencies on a month-to-month basis, without public bidding.

The Issue

The central issue before the Supreme Court was whether the NFA could justify terminating the incumbent security agencies based on loss of trust and confidence, and whether the negotiated contracts with new agencies were valid.

The Ruling

The Supreme Court dismissed the NFA's petition and affirmed the Court of Appeals' decision. While the Court acknowledged that the NFA had the power to discontinue the services of the incumbent security agencies because their contracts had expired, it scrutinized the manner in which the termination was carried out.

The Court found it "strange" that the NFA chose to terminate the services of all incumbent agencies at a time when a "security void" would directly result from their withdrawal. Notably, some of the terminated agencies had already passed the prequalification stage and were declared eligible to join the public bidding. Scarcely a month later, they were terminated "at the same time and for the same reasons as the rest."

The Court also noted that the NFA's failure to conduct a public bidding within a reasonable time "casts doubts on the good faith behind the negotiated contracts." The NFA took one year evaluating bid proposals only to declare a failure of bidding in all areas, and its "manifest reluctance" to conclude the bidding "smacks of favoritism and partiality."

The Burden of Proof Standard

The decision underscores that loss of trust and confidence cannot be used as a blanket justification for termination. For this ground to be valid, the employer must:

• Prove the factual basis for the loss of trust and confidence. The mere allegation is insufficient.
• Show that the employee holds a position of trust and confidence, such as a managerial or fiduciary role.
• Establish that the act complained of is work-related and connected to the employee's duties.

In this case, the NFA's blanket termination of all incumbent agencies—including those that had prequalified for bidding—on the same ground of loss of trust and confidence, without specific factual basis for each agency, failed to meet this standard.

Practical Takeaways

• Loss of trust and confidence is a valid ground for dismissal, but the employer bears the burden of proving it. The employer must present clear and convincing evidence of the specific acts that destroyed the trust.
• The ground applies primarily to employees holding positions of trust and confidence, such as managers, fiduciaries, or those with access to confidential information. For rank-and-file employees, the standard is stricter.
• Blanket terminations based on a general allegation of loss of trust are suspect. Employers should evaluate each employee individually and document specific reasons for each termination.
• Good faith matters. The Court looks at the totality of circumstances, including whether the employer acted promptly and consistently. Delays or suspicious timing can undermine the employer's case.
• Expiration of a contract does not automatically justify termination without cause. While fixed-term contracts end by their terms, if the employer tolerates continued service, it must still observe proper termination procedures.

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