Loss of Trust and Confidence as a Ground for Dismissal: What Employers Must Prove

The Supreme Court recently reminded employers that "loss of trust and confidence" is not a magic phrase that automatically justifies dismissing an employee. In Distribution & Control Products, Inc. v. Santos (G.R. No. 212616, July 10, 2017), the Court denied the employer's petition and affirmed rulings that found a company driver illegally dismissed. The case is a useful guide for both employers and employees on what the law actually requires when this ground is invoked.

The Facts of the Case

The respondent was employed as a company driver for Distribution & Control Products, Inc. His duties included delivering purchased items, documenting returned products, and coordinating with the warehouseman and accounting department.

In 2010, the company conducted physical inventories and discovered missing electrical materials worth over P450,000. A subsequent inventory revealed more missing items, including a circuit breaker worth over P106,000. The company claimed the driver and the warehouseman were the only persons with complete access to the warehouse.

The company filed a criminal complaint for qualified theft and placed the driver under preventive suspension for 30 days. After the suspension lapsed, the driver was not allowed to return to work. He filed a complaint for constructive illegal dismissal.

The Issue

The central question was whether the employer validly dismissed the employee on the ground of loss of trust and confidence, and whether procedural due process was observed.

The Ruling

The Supreme Court denied the employer's petition. The Court held that while loss of trust and confidence is a just cause for dismissal under Article 282(c) of the Labor Code, the employer must satisfy two conditions:

First, the employee must hold a position of trust and confidence. There are two classes: (1) managerial employees entrusted with confidential matters, and (2) employees like cashiers, auditors, and property custodians who regularly handle significant amounts of the employer's money or property.

Second, the employer must establish an act justifying the loss of trust. The act must be real—founded on clearly established facts—and the breach must be willful, meaning done intentionally and knowingly. For rank-and-file employees, the employer must prove the employee's involvement in the alleged events. Mere uncorroborated assertions will not suffice.

In this case, the Court acknowledged the driver may occupy a position of trust because he handled company products. However, the employer failed to present substantial evidence linking him to the theft. The Court also noted the employer conducted an investigation without the employee's participation.

Substantive and Procedural Due Process

The Court reiterated the two separate inquiries in illegal dismissal cases: (1) whether dismissal was for just or authorized cause, and (2) whether procedure was followed.

On procedure, the employer must give two written notices: the first apprising the employee of the specific acts or omissions for which dismissal is sought, and the second informing the employee of the decision to dismiss. The first notice must contain a detailed narration of facts, not a general description. The employee must also be given a reasonable opportunity to be heard—at least five calendar days to prepare a defense.

Here, the only notice given was the preventive suspension notice, which did not require the employee to explain his side. No notice of termination was given. The employer's claim that the employee abandoned his job was not substantiated.

Practical Takeaways

• Loss of trust requires proof. Employers cannot rely on mere suspicion or uncorroborated accusations. They must present substantial evidence of the employee's involvement in the alleged misconduct.
• Position matters. The ground applies more readily to managerial employees and those handling significant company property, but even then, the act justifying dismissal must be clearly established.
• Follow the two-notice rule. A preventive suspension notice is not a substitute for the required notices. The first notice must detail the charges and give the employee at least five days to respond.
• Conduct a fair investigation. The employee must be given an opportunity to be heard, with the chance to present evidence and rebut the employer's evidence.
• Abandonment must be proven. An employer claiming abandonment must show that the employee intended to sever the employment relationship; failure to report for work alone is not enough.

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