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

The Supreme Court recently reminded employers that the ground of "loss of trust and confidence" is not a blank check to terminate employees. In Leo's Restaurant and Bar Cafe Mountain Suite Business Apartelle v. Bensing (G.R. No. 208535, October 19, 2016), the Court ruled that dismissal on this ground requires proof of a willful breach based on clearly established facts—not mere suspicion or afterthought.

The Case at a Glance

Laarne Bensing worked as a liaison officer for Kimwa Construction & Development Corporation starting January 2002. In July 2005, she was appointed Administrative Officer/Human Resource Head of Leo's Restaurant and Bar Cafe and the Mountain Suite Business Apartelle, with a monthly salary of P15,000.

In December 2005, Leo Lua, the manager, accused Bensing of signing an exclusivity contract with Pepsi Products Philippines, Inc. without authority, failing to account for donated soft drinks, and charging personal meals to the restaurant's account. After Bensing submitted her explanations, she was terminated effective January 15, 2006 on the ground of loss of trust and confidence.

The Legal Standard for Loss of Trust and Confidence

The Court reiterated that for dismissal based on loss of trust and confidence to be valid, two requisites must concur:

1. The employee must hold a position of trust; and
2. The loss of trust must be based on a willful breach, founded on clearly established facts.

While Bensing occupied a position of trust as Administrative Officer/HR Head, the second requirement was not met. The Court emphasized that loss of trust and confidence "should not be simulated" or "used as a subterfuge for causes which are improper, illegal, or unjustified." It must rest on substantial grounds, not on the employer's whims or caprices.

Why the Dismissal Was Illegal

The Court found that the charges against Bensing were unsubstantiated. Pepsi's Sales Manager executed an affidavit confirming that Leo verbally authorized Bensing to sign the exclusivity contract. Pepsi also clarified that it donated only 30 cases of products—not the 67 cases claimed—and that Bensing received no personal benefits.

Even assuming Bensing lacked express authority, the Court noted that signing the contract fell within her functions, which included authority over "all operation, administrative and functional matters" and overseeing the entire business operations. The charge of dishonesty for charging meals was likewise unsupported, especially since the amounts were deducted from her salary.

Significantly, the Court observed that the dismissal appeared pre-determined. Despite Bensing's explanations and Pepsi's clarifications, the termination proceeded anyway.

The Doctrine of Piercing the Corporate Veil

The Court also addressed the argument that the restaurant and apartelle were separate entities from Kimwa. Evidence showed that Leo, as "Proprietor/Chief Executive Officer of Kimwa Construction & Development Corp./Mountain Suite Business Apartelle," appointed Bensing and issued all memoranda under Kimwa's letterhead.

The Court applied the principle that when business entities are owned, controlled, and conducted by the same parties, the legal fiction of separate corporate personality may be disregarded to protect the rights of third persons. All entities were treated as a single employer, solidarily liable for the illegal dismissal.

Consequences of Illegal Dismissal

Because the dismissal was illegal, the Court affirmed awards of backwages, separation pay, moral damages of P50,000, exemplary damages of P50,000, 13th month pay differential, and attorney's fees. Moral damages were justified because the employer acted in bad faith, while exemplary damages served to deter similar conduct.

Practical Takeaways

• Loss of trust and confidence is a difficult ground to prove. Employers must show a willful, knowing, and purposeful breach—not mere suspicion or subjective feelings.
• Substantial evidence is required. The employer bears the burden of proving the dismissal was for a just cause. Unsubstantiated charges will not suffice.
• Due process remains critical. Employees must be given notice of the charges and an opportunity to be heard. A pre-determined dismissal violates this requirement.
• Related business entities may be treated as one employer. When the same individuals own and control multiple entities, courts may pierce the corporate veil to hold all liable.
• Good faith matters. An employee who acts within the apparent scope of authority and without malice or personal gain may not be dismissed for breach of trust.

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