When Can an Employee Be Dismissed for Loss of Trust and Confidence: A Philippine Guide

Dismissing an employee for loss of trust and confidence is one of the most common—and most contested—grounds for termination in the Philippines. Employers often assume that simply claiming lost trust is enough. The Supreme Court, however, has made clear that this ground is not a blank check.

In Philippine Savings Bank v. NLRC (G.R. No. 111173, September 4, 1996), the Court laid down the rules on when loss of trust and confidence can justify dismissal—and when it cannot. The case is a useful guide for both employers and employees navigating this delicate area of labor law.

The Case: A Bank Officer Accused of a P15,000 Shortage

Victoria Centeno worked for Philippine Savings Bank for 19 years, rising from teller to assistant cashier. In late 1984, she served as acting branch cashier while the regular cashier was on maternity leave. On the day she turned over the cash vault back to the regular cashier, the bank later discovered a P15,000 shortage.

The bank alleged that Centeno falsified a deposit slip, making it appear she deposited P371,400 when she actually deposited only P356,400. The discrepancy supposedly concealed the shortage. Centeno was given a show-cause memorandum, preventively suspended, and eventually dismissed for loss of trust and confidence.

Centeno sued for illegal dismissal. The Labor Arbiter and the NLRC ruled in her favor, and the Supreme Court affirmed.

The Two-Notice Rule: What Due Process Requires

The Court reiterated that before an employee can be validly dismissed, an employer must give two written notices:

1. A notice informing the employee of the specific acts or omissions for which dismissal is sought; and
2. A subsequent notice informing the employee of the decision to dismiss.

The Court found that the bank complied with this requirement. Centeno received the show-cause memorandum on January 7, 1985, and the dismissal notice on February 4, 1985.

Importantly, the Court ruled that Centeno was not denied due process simply because no formal hearing was held. She was given an opportunity to explain—and she chose not to. As the Court put it: "If he chooses to be silent when he has a right to speak, he cannot later be heard to complain that he was silenced."

A formal, trial-type hearing is not always required. What matters is that the employee is given a fair and reasonable opportunity to respond.

Loss of Trust and Confidence: The Real Test

The heart of the case is when loss of trust and confidence can justify dismissal. The Court acknowledged the rule: an employee entrusted with fiduciary matters, or with custody of the employer's property, may be dismissed for loss of trust and confidence.

But the Court added a crucial qualification: the employer must clearly and convincingly establish the facts and incidents upon which the loss of confidence is based. Otherwise, the dismissal is illegal.

In this case, the bank failed that test. Here is why:

• No evidence of falsification. The alleged falsified deposit slip was never presented. The bank claimed it was missing.
• The cashier had the passbook. The regular cashier, who prepared the cash proof sheet, had the Metrobank passbook showing the actual deposit of P356,400. She could have noticed the discrepancy.
• The handwriting expert cleared Centeno. An NBI expert testified that the questioned figures on the cash proof sheet were not written by Centeno.
• Access was not exclusive. The documents were kept in the vault, and only the regular cashier held the key. The bank failed to show that Centeno was the only person who could have altered the records.
• The accounting method was acceptable. Even the bank's own witness admitted that Centeno's method was a valid bank procedure.

The Court also noted that Centeno had served faithfully for 19 years with no reported shortage during her two months as acting cashier. Given her record, the bank should have been more careful in determining liability rather than relying on circumstantial evidence.

Backwages: The Applicable Rule

Because the dismissal was illegal, Centeno was entitled to reinstatement and backwages. The NLRC limited backwages to three years, consistent with the rule at the time of her dismissal in 1985.

The Court explained that R.A. No. 6715, which amended Article 279 of the Labor Code to provide full backwages, took effect on March 21, 1989. It cannot be applied retroactively to dismissals that happened before that date. Thus, the three-year cap applied.

Practical Takeaways

• Loss of trust and confidence is a valid ground for dismissal, but only for employees holding positions of trust, such as those with custody of funds or property.
• The employer bears the burden of proof. It must clearly and convincingly establish the facts supporting the loss of confidence. Suspicion or circumstantial evidence is not enough.
• Follow the two-notice rule. Always issue a written notice specifying the charges and a second notice of the decision to dismiss. Give the employee a real opportunity to respond.
• A formal hearing is not always required, but the employee must be given a fair chance to explain. If the employee chooses not to respond, that silence cannot later be used to claim denial of due process.
• Consider the employee's record. A long, unblemished service history should make an employer more careful before relying on weak evidence of wrongdoing.

For employers, the lesson is to investigate thoroughly and document evidence before dismissing on grounds of lost trust. For employees, the case affirms that the law protects against arbitrary dismissal—even when an employer claims lost confidence.

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