When Can Employers Fire for Loss of Trust? Key Accounts Manager Case Explained

The Supreme Court recently clarified the boundaries of a common but often misunderstood ground for terminating employees: loss of trust and confidence. In Pepsi-Cola Products Phils., Inc. v. Pacana (G.R. No. 248108, July 14, 2021), the Court ruled that a Key Accounts Manager who admitted to falsifying documents and deviating from company procedure was validly dismissed. The case is a useful guide for both employers and employees on what constitutes just cause and due process in termination cases.

The Facts of the Case

Angelo Pacana worked as a Key Accounts Manager (KAM) for Pepsi-Cola Products Phils., Inc. in Cagayan de Oro. His job involved booking orders for products and collecting payments from clients. In August 2015, Pepsi accused him of several irregularities involving one of its clients, Mega Farm.

The company alleged that Pacana: (1) booked fictitious sales worth P204,522.00 that were never delivered to Mega Farm; and (2) misapplied payments totaling P261,846.18 that Mega Farm had already made, applying them to other invoices instead of the correct ones. During the administrative investigation, Pacana admitted that he deviated from proper procedure by applying a "First In-First Out" method, and he expressly admitted to falsifying documents.

Pepsi dismissed Pacana for loss of trust and confidence. He challenged the dismissal before the Labor Arbiter, the National Labor Relations Commission (NLRC), and the Court of Appeals (CA), all of which ruled in his favor. The CA held that Pepsi failed to prove the act justifying loss of trust. Pepsi elevated the case to the Supreme Court.

The Issue

The central issue was whether Pacana was dismissed with just cause and with due process.

The Ruling: Dismissal Was Valid

The Supreme Court reversed the lower tribunals and ruled that Pacana's dismissal was valid. The Court explained that for a dismissal based on loss of trust and confidence to be valid, two conditions must concur: (1) the employee must occupy a position of trust and confidence; and (2) the employer must establish some basis for the loss of trust—that is, an act justifying it.

Position of trust. The Court held that Pacana fell under the second class of trust positions: fiduciary rank-and-file employees who regularly handle significant amounts of money or property in the normal exercise of their functions. As a KAM, Pacana handled company funds by collecting sales from bookings. His job title was not decisive—what mattered was the nature of his work.

Basis for loss of trust. The Court found substantial evidence of Pacana's fraud. Representatives of Mega Farm denied receiving the products covered by the three invoices worth P204,522.00. Trucking personnel stated that Pacana obtained invoices and returned them already bearing signatures. During the administrative hearing, Pacana admitted he did not know whether the products were delivered, and he said the invoices were lost.

As to the misapplied payments, Pacana admitted he applied Mega Farm's payments to other transactions. He also admitted to falsifying documents. The Court noted that the Office of the City Prosecutor of Cagayan de Oro even found probable cause against Pacana for estafa and falsification of commercial documents. Taken together, these constituted substantial evidence of fraud.

The Court also corrected a common misconception: Pacana's reliance on "FIFO" was misplaced. What he actually did was "lapping"—diverting payments from one account to hide the theft of cash or misapplied funds. This left Mega Farm's invoices unpaid and prejudiced the company.

Due Process Was Observed

The Court also ruled that Pepsi complied with the twin notice requirement. Pacana received a memorandum informing him of the charges and directing him to explain, and he later received a notice of decision detailing the grounds for his dismissal. He attended the administrative hearing and was allowed to present his side.

The Court stressed that "ample opportunity to be heard" does not require a formal or trial-type hearing. It is enough that the employee is given a fair and reasonable chance to explain his side and present evidence. Notably, Pacana even thanked the company at the end of the hearing and asked for another chance.

Preventive Suspension Was Justified

The Court upheld Pacana's preventive suspension. Under the Omnibus Rules Implementing the Labor Code, an employer may place an employee under preventive suspension when the employee's continued employment poses a serious and imminent threat to the life or property of the employer or co-workers. Because Pacana had access to the very documents subject of the case, the company was justified in protecting its property.

The Court reminded that preventive suspension is limited to 30 days, and any extension requires payment of wages. However, Pacana only raised the non-payment issue for the first time on appeal, so the Court barred him from raising it.

Practical Takeaways

• Loss of trust is a valid ground for dismissal, but only if the employee holds a position of trust and the employer proves an act justifying the loss. The act must be established by substantial evidence—not mere speculation.
• Job titles are not controlling. What matters is the nature of the employee's actual functions. Employees who regularly handle money or property in their routine duties hold positions of trust.
• Admissions during an administrative investigation are powerful evidence. Employees should take hearings seriously and consult counsel before making statements.
• Due process in termination does not require a full trial. A fair and reasonable opportunity to explain one's side, plus the twin notices, is sufficient.
• Preventive suspension is allowed but limited to 30 days. Any extension requires payment of wages. Employees who are not paid during an extended suspension should raise this promptly, not for the first time on appeal.

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