Loss of Confidence as a Ground for Dismissal: When Employers Cannot Use It as a Subterfuge

The Supreme Court has long recognized that an employer may dismiss a managerial employee on the ground of loss of trust and confidence. But this ground is not a blank check. In Capili v. Philippine National Bank (G.R. No. 204750, July 11, 2016), the Court reminded employers that loss of confidence must be genuine, not simulated, and cannot be used as a subterfuge to justify an otherwise illegal dismissal. The case is a useful guide for both employers and employees on the limits of this often-invoked ground for termination.

The Facts of the Case

Susan Capili was the Assistant Vice President for Systems and Methods Division of the Philippine National Bank (PNB). In 2005, PNB received a complaint from a Korean national alleging that Capili was engaged in anomalous transactions. An investigation followed, and PNB later charged Capili with acts tending to show questionable moral character and falsification of personnel records.

The administrative case against Capili involved several matters: the complaint of the Korean national, two cases for violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) filed against her in 2000 and 2001, and her alleged failure to disclose her ownership of a private company.

In its first decision dated January 16, 2007, PNB's Administrative Adjudication Panel dismissed the complaint against Capili provisionally. The Panel found that the Korean national's complaint had no sufficient basis, that the falsification charge was unfounded, and that the charge relating to one of the BP 22 cases lost its basis after that case was dismissed. The only remaining matter was a pending BP 22 case in Bulacan, the outcome of which would help resolve the issue of Capili's character.

However, after the Bulacan case was dismissed, PNB changed its position. In a second decision dated August 1, 2007, PNB found Capili guilty of violating its policy on loss of confidence and dismissed her from employment. PNB revived the previously abandoned charges and also cited Capili's NBI record showing she was a respondent in several criminal cases.

The Issue

The central question was whether Capili's dismissal on the ground of loss of trust and confidence was valid.

The Ruling

The Supreme Court ruled in favor of Capili, holding that her dismissal was illegal. The Court found that PNB's loss of confidence was simulated and a mere afterthought.

The Court noted that in its first decision, PNB had already absolved Capili of all charges except the Bulacan case. When PNB issued its second decision, it unjustifiably revived the old charges that had already been resolved. This violated PNB's own guidelines on loss of confidence, which require that the ground must not be simulated, must not be used as a subterfuge for improper causes, must not be arbitrarily asserted in the face of overwhelming evidence to the contrary, and must be genuine and not a mere afterthought.

The Court also found it significant that PNB gave Capili a "Very Good" rating in her performance appraisal in February 2007, at a time when PNB was already aware of the BP 22 cases and the pending administrative case. This was inconsistent with PNB's claim that it had lost trust and confidence in her.

The Standard for Loss of Confidence

The Court reiterated that to validly dismiss an employee on the ground of loss of trust and confidence, two requirements must concur: (1) the employee must hold a position of trust and confidence, and (2) the employee must have committed an act justifying such loss of trust. The employer bears the burden of proving by substantial evidence the facts upon which it based its loss of confidence.

The Court also clarified that a bank circular relied upon by PNB, which disqualified persons with derogatory records from becoming directors, did not apply to Capili because she was not a director and was not convicted by final judgment of any offense.

Payroll Reinstatement Pending Appeal

The Court also addressed the issue of reinstatement pending appeal. Under Article 229 (formerly Article 223) of the Labor Code, a Labor Arbiter's decision ordering reinstatement is immediately executory even pending appeal. The employer may either admit the employee back to work or, at its option, reinstate the employee in the payroll.

The Court held that mere deposit of salaries with the NLRC Cashier is not sufficient compliance with the payroll reinstatement order. The employee must actually receive the salaries during the period of appeal, and is not required to return them even if the employer's appeal eventually succeeds.

Practical Takeaways

• Loss of confidence is not a catch-all ground. Employers cannot use it to dismiss a managerial employee simply because they have lost subjective trust in the employee. There must be an act that justifies such loss, proven by substantial evidence.

• Employers cannot revive abandoned charges. Once an employer has resolved certain charges in favor of the employee, it cannot later revive those same charges to justify dismissal.

• Consistency matters. An employer that gives an employee a positive performance rating while claiming to have lost trust and confidence in that employee weakens its own case.

• Payroll reinstatement means actual payment. When an employee is ordered reinstated on payroll pending appeal, the employer must actually pay the salaries. Mere deposit with the NLRC Cashier is not enough.

• Dismissed criminal cases cannot justify termination. The fact that an employee was once charged with an offense, but the case was dismissed, cannot be used as a ground for dismissal on the ground of loss of confidence.

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