Loss of Confidence as a Dismissal Ground: When Employers Cannot Claim It

The Supreme Court has long recognized that employers may dismiss managerial employees on the ground of loss of trust and confidence. But this ground is not a blank check for termination. 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 for unjustified dismissal.

The case involved a bank officer who was dismissed after charges against her — including bounced checks cases — had been dismissed by the courts. The Court ruled that her termination was illegal, and in doing so, laid down important guidelines on when loss of confidence can and cannot justify dismissal.

The Facts of the Case

Susan Capili was the Assistant Vice President for Systems and Methods Division of the Philippine National Bank (PNB) from 1994 until her dismissal in 2007. In 2005, a Korean national named Hyun Duk Cho complained that Capili was engaged in anomalous transactions. PNB created a Fact-Finding Committee, which reported that Capili owned a private company called Sandino Builders and that she had entered into a contract of sale of scrap metals with Hyun within PNB premises.

PNB later charged Capili with acts showing questionable moral character constituting loss of confidence, and falsification of personnel records. The charges stemmed from her alleged failure to disclose her business interest in Sandino Builders, and from two criminal cases for violation of Batas Pambansa Blg. 22 (the Bouncing Checks Law) filed against her in 2000 and 2001.

In its first decision dated January 16, 2007, PNB's Administrative Adjudication Panel dismissed the charges against Capili — except one — provisionally. The Panel found that Hyun's complaint had no sufficient basis, that the falsification charge was unfounded, and that the Makati bounced checks case had lost its basis because it was already dismissed. The only remaining matter was a pending bounced checks case in Bulacan, and PNB said its ruling would depend on the outcome of that case.

When the Bulacan case was dismissed with finality, Capili asked PNB to release her benefits. Instead, PNB rendered a second decision on August 1, 2007, finding her guilty of violating its policy on loss of confidence and dismissing her effective August 9, 2007. PNB revived the previously dismissed charges and also cited a BSP circular on disqualification of bank directors.

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 PNB failed to prove by substantial evidence that there was just cause for her dismissal.

The Court reiterated that for a valid dismissal, two requirements must concur: (1) the dismissal must be for a cause under Article 297 (formerly Article 282) of the Labor Code, and (2) the employee must be given the opportunity to be heard. One of the grounds under Article 297 is the employer's loss of trust and confidence. To validly dismiss on this ground, the employee must hold a position of trust and confidence, and must have committed an act justifying such loss of trust.

While Capili, as an Assistant Vice President, clearly held a position of trust and confidence, the Court found that she did not commit any act justifying PNB's loss of trust.

The Court pointed out that PNB's first decision had already absolved Capili of all charges except the Bulacan case. When PNB rendered its second decision, it revived the previously dismissed charges — a move that violated its own guidelines on loss of confidence, which state that loss of confidence 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, not a mere afterthought.

The Court also noted that PNB gave Capili a "Very Good" rating in her performance appraisal dated February 27, 2007 — at a time when PNB was already aware of the cases against her. Citing General Bank & Trust Co. v. Court of Appeals, the Court said that such a favorable rating disproved the claim that PNB had lost its trust and confidence in her.

As for the BSP circular cited by PNB, the Court agreed with the NLRC that it pertained to the disqualification of bank officers from holding director positions upon conviction by final judgment. Capili was neither a director nor convicted of any offense, so the circular could not be used as a ground for her dismissal.

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 reinstate the employee in the payroll. Citing Aboc v. Metropolitan Bank and Trust Company and Wenphil Corporation v. Abing, the Court held that in case of payroll reinstatement, the employee is not required to return the salary received during the period the lower tribunal declared the dismissal illegal, even if the employer's appeal eventually succeeds.

Practical Takeaways

• Loss of confidence must be genuine. Employers cannot claim loss of trust and confidence as a mere afterthought to justify a dismissal that was already decided in bad faith.

• Dismissed charges cannot be revived. Once an employer has resolved that certain charges have no basis, it cannot later revive those same charges to justify termination.

• Good performance ratings are evidence against loss of confidence. If an employer continues to give an employee favorable performance ratings while allegedly having lost trust in that employee, the claim of loss of confidence becomes doubtful.

• Personal and dismissed cases are weak grounds. Criminal cases that are personal in nature, unrelated to work, and already dismissed with finality cannot easily support a claim of loss of confidence.

• Payroll reinstatement is immediately executory. When a Labor Arbiter orders reinstatement pending appeal, the employer must actually pay the employee's salaries during the appeal period, and the employee need not return those salaries even if the employer wins on appeal.

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