This is a petition seeking review of the resolutions, dated March 30, 1994 and August 26, 1994, of the National Labor Relations Commission (NLRC) which reversed the decision of the Labor Arbiter and dismissed petitioner Ruben Serrano’s complaint for illegal dismissal and denied his motion for reconsideration. The facts are as follows:

Petitioner was hired by private respondent Isetann Department Store as a security checker to apprehend shoplifters and prevent pilferage of merchandise.1 [TSN of testimony of petitioner, pp. 24, 76-78, April 24, 1992.] Initially hired on October 4, 1984 on contractual basis, petitioner eventually became a regular employee on April 4, 1985. In 1988, he became head of the Security Checkers Section of private respondent.2 [Petitioner’s Position Paper, Annex C; Records, p. 19.]

Sometime in 1991, as a cost-cutting measure, private respondent decided to phase out its entire security section and engage the services of an independent security agency. For this reason, it wrote petitioner the following memorandum:3 [Id., Annex B; id., p. 21.]

The loss of his employment prompted petitioner to file a complaint on December 3, 1991 for illegal dismissal, illegal layoff, unfair labor practice, underpayment of wages, and nonpayment of salary and overtime pay.4 [Records, p. 2.]

The parties were required to submit their position papers, on the basis of which the Labor Arbiter defined the issues as follows:5 [Decision, dated April 30, 1993, of Labor Arbiter Pablo C. Espiritu. Petition, Annex A; Rollo, p. 30.]

Thereafter, the case was heard. On April 30, 1993, the Labor Arbiter rendered a decision finding petitioner to have been illegally dismissed. He ruled that private respondent failed to establish that it had retrenched its security section to prevent or minimize losses to its business; that private respondent failed to accord due process to petitioner; that private respondent failed to use reasonable standards in selecting employees whose employment would be terminated; that private respondent had not shown that petitioner and other employees in the security section were so inefficient so as to justify their replacement by a security agency, or that "cost-saving devices [such as] secret video cameras (to monitor and prevent shoplifting) and secret code tags on the merchandise" could not have been employed; instead, the day after petitioner’s dismissal, private respondent employed a safety and security supervisor with duties and functions similar to those of petitioner.

Accordingly, the Labor Arbiter ordered:6 [Id., pp. 35-36.]

Private respondent appealed to the NLRC which, in its resolution of March 30, 1994, reversed the decision of the Labor Arbiter and ordered petitioner to be given separation pay equivalent to one month pay for every year of service, unpaid salary, and proportionate 13th month pay. Petitioner filed a motion for reconsideration, but his motion was denied.

The NLRC held that the phase-out of private respondent’s security section and the hiring of an independent security agency constituted an exercise by private respondent of "[a] legitimate business decision whose wisdom we do not intend to inquire into and for which we cannot substitute our judgment"; that the distinction made by the Labor Arbiter between "retrenchment" and the employment of "cost-saving devices" under Art. 283 of the Labor Code was insignificant because the company official who wrote the dismissal letter apparently used the term "retrenchment" in its "plain and ordinary sense: to layoff or remove from one’s job, regardless of the reason therefor"; that the rule of "reasonable criteria" in the selection of the employees to be retrenched did not apply because all positions in the security section had been abolished; and that the appointment of a safety and security supervisor referred to by petitioner to prove bad faith on private respondent’s part was of no moment because the position had long been in existence and was separate from petitioner’s position as head of the Security Checkers Section.

Hence this petition. Petitioner raises the following issue:

Petitioner contends that abolition of private respondent’s Security Checkers Section and the employment of an independent security agency do not fall under any of the authorized causes for dismissal under Art. 283 of the Labor Code.

Petitioner’s contention has no merit. Art. 283 provides:

In De Ocampo v. National Labor Relations Commission,8 [213 SCRA 652 (1992)] this Court upheld the termination of employment of three mechanics in a transportation company and their replacement by a company rendering maintenance and repair services. It held:

In Asian Alcohol Corporation v. National Labor Relations Commission,10 [G.R. No. 131108, March 25, 1999.] the Court likewise upheld the termination of employment of water pump tenders and their replacement by independent contractors. It ruled that an employer’s good faith in implementing a redundancy program is not necessarily put in doubt by the availment of the services of an independent contractor to replace the services of the terminated employees to promote economy and efficiency.

Indeed, as we pointed out in another case, the "[management of a company] cannot be denied the faculty of promoting efficiency and attaining economy by a study of what units are essential for its operation. To it belongs the ultimate determination of whether services should be performed by its personnel or contracted to outside agencies . . . [While there] should be mutual consultation, eventually deference is to be paid to what management decides."11 [Shell Oil Workers Union v. Shell Company of the Philippines, Ltd., 39 SCRA 276, 284-285 (1971)] Consequently, absent proof that management acted in a malicious or arbitrary manner, the Court will not interfere with the exercise of judgment by an employer.12 [Asian Alcohol Corporation v. National Labor Relations Commission, G.R. No. 131108, March 25, 1999.]

In the case at bar, we have only the bare assertion of petitioner that, in abolishing the security section, private respondent’s real purpose was to avoid payment to the security checkers of the wage increases provided in the collective bargaining agreement approved in 1990.13 [TSN, p. 61, April 24, 1992.] Such an assertion is not a sufficient basis for concluding that the termination of petitioner’s employment was not a bona fide decision of management to obtain reasonable return from its investment, which is a right guaranteed to employers under the Constitution.14 [Const., Art. XIII, §3.] Indeed, that the phase-out of the security section constituted a "legitimate business decision" is a factual finding of an administrative agency which must be accorded respect and even finality by this Court since nothing can be found in the record which fairly detracts from such finding.15 [E.g., Aurora Land Projects Corporation v. NLRC, 266 SCRA 48 (1997)]

Accordingly, we hold that the termination of petitioner’s services was for an authorized cause, i.e., redundancy. Hence, pursuant to Art. 283 of the Labor Code, petitioner should be given separation pay at the rate of one month pay for every year of service.

Art. 283 also provides that to terminate the employment of an employee for any of the authorized causes the employer must serve "a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof." In the case at bar, petitioner was given a notice of termination on October 11, 1991. On the same day, his services were terminated. He was thus denied his right to be given written notice before the termination of his employment, and the question is the appropriate sanction for the violation of petitioner’s right.

To be sure, this is not the first time this question has arisen. In Sebuguero v. NLRC,16 [248 SCRA 532 (1995)] workers in a garment factory were temporarily laid off due to the cancellation of orders and a garment embargo. The Labor Arbiter found that the workers had been illegally dismissed and ordered the company to pay separation pay and backwages. The NLRC, on the other hand, found that this was a case of retrenchment due to business losses and ordered the payment of separation pay without backwages. This Court sustained the NLRC’s finding. However, as the company did not comply with the 30-day written notice in Art. 283 of the Labor Code, the Court ordered the employer to pay the workers P2,000.00 each as indemnity.

The decision followed the ruling in several cases involving dismissals which, although based on any of the just causes under Art. 282,17 [This provision reads:

Termination by employer. - An employer may terminate an employment for any of the following causes:

(e) Other causes analogous to the foregoing.] were effected without notice and hearing to the employee as required by the implementing rules.18 [Bk. VI, Rule 1, of the Omnibus Rules and Regulations to Implement the Labor Code provides in pertinent parts:

For termination of employment as defined in Article 283 of the Labor Code, the requirement of due process shall be deemed complied with upon service of a written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment at least thirty days before effectivity of the termination, specifying the ground or grounds for termination . . . .] As this Court said: "It is now settled that where the dismissal of one employee is in fact for a just and valid cause and is so proven to be but he is not accorded his right to due process, i.e., he was not furnished the twin requirements of notice and opportunity to be heard, the dismissal shall be upheld but the employer must be sanctioned for non-compliance with the requirements of, or for failure to observe, due process."19 [Sebuguero v. NLRC, 248 SCRA at 547.]

The rule reversed a long standing policy theretofore followed that even though the dismissal is based on a just cause or the termination of employment is for an authorized cause, the dismissal or termination is illegal if effected without notice to the employee. The shift in doctrine took place in 1989 in Wenphil Corp. v. NLRC.20 [170 SCRA 69 (1989)] In announcing the change, this Court said:21 [Id., at 75-76.]

The fines imposed for violations of the notice requirement have varied from P1,000.0022 [E.g., Aurelio v. NLRC, 221 SCRA 432 (1993) (dismissal of a managerial employee for breach of trust); Rubberworld (Phils.), Inc. v. NLRC, 183 SCRA 421 (1990) (dismissal for absenteeism, leaving the work place without notice, tampering with machines); Shoemart, Inc. v. NLRC, 176 SCRA 385 (1989) (dismissal for abandonment of work)] to P2,000.0023 [Sebuguero v. NLRC, 248 SCRA 536 (1995) (termination of employment due to retrenchment)]to P5,000.0024 [E.g., Worldwide Papermills, Inc. v. NLRC, 244 SCRA 125 (1995) (dismissal for gross and habitual neglect of duties)] to P10,000.00.25 [E.g., Reta v. NLRC, 232 SCRA 613 (1994) (dismissal for negligence and insubordination)]

Today, we once again consider the question of appropriate sanctions for violations of the notice requirement in light of our experience during the last decade or so with the Wenphil doctrine. The number of cases involving dismissals without the requisite notice to the employee, although effected for just or authorized causes, suggests that the imposition of fine for violation of the notice requirement has not been effective in deterring violations of the notice requirement. Justice Panganiban finds the monetary sanctions "too insignificant, too niggardly, and sometimes even too late." On the other hand, Justice Puno says there has in effect been fostered a policy of "dismiss now, pay later" which moneyed employers find more convenient to comply with than the requirement to serve a 30-day written notice (in the case of termination of employment for an authorized cause under Arts. 283-284) or to give notice and hearing (in the case of dismissals for just causes under Art. 282).

For this reason, they regard any dismissal or layoff without the requisite notice to be null and void even though there are just or authorized causes for such dismissal or layoff. Consequently, in their view, the employee concerned should be reinstated and paid backwages.

We agree with our esteemed colleagues, Justices Puno and Panganiban, that we should rethink the sanction of fine for an employer’s disregard of the notice requirement. We do not agree, however, that disregard of this requirement by an employer renders the dismissal or termination of employment null and void. Such a stance is actually a reversion to the discredited pre-Wenphil rule of ordering an employee to be reinstated and paid backwages when it is shown that he has not been given notice and hearing although his dismissal or layoff is later found to be for a just or authorized cause. Such rule was abandoned in Wenphil because it is really unjust to require an employer to keep in his service one who is guilty, for example, of an attempt on the life of the employer or the latter’s family, or when the employer is precisely retrenching in order to prevent losses.

The need is for a rule which, while recognizing the employee’s right to notice before he is dismissed or laid off, at the same time acknowledges the right of the employer to dismiss for any of the just causes enumerated in Art. 282 or to terminate employment for any of the authorized causes mentioned in Arts. 283-284. If the Wenphil rule imposing a fine on an employer who is found to have dismissed an employee for cause without prior notice is deemed ineffective in deterring employer violations of the notice requirement, the remedy is not to declare the dismissal void if there are just or valid grounds for such dismissal or if the termination is for an authorized cause. That would be to uphold the right of the employee but deny the right of the employer to dismiss for cause. Rather, the remedy is to order the payment to the employee of full backwages from the time of his dismissal until the court finds that the dismissal was for a just cause. But, otherwise, his dismissal must be upheld and he should not be reinstated. This is because his dismissal is ineffectual.

For the same reason, if an employee is laid off for any of the causes in Arts. 283-284, i.e., installation of a labor-saving device, but the employer did not give him and the DOLE a 30-day written notice of termination in advance, then the termination of his employment should be considered ineffectual and he should be paid backwages. However, the termination of his employment should not be considered void but he should simply be paid separation pay as provided in Art. 283 in addition to backwages.

Justice Puno argues that an employer’s failure to comply with the notice requirement constitutes a denial of the employee’s right to due process. Prescinding from this premise, he quotes the statement of Chief Justice Concepcion in Vda. de Cuaycong v. Vda. de Sengbengco26 [110 Phil. 113, 118 (1960)] that "acts of Congress, as well as of the Executive, can deny due process only under the pain of nullity, and judicial proceedings suffering from the same flaw are subject to the same sanction, any statutory provision to the contrary notwithstanding." Justice Puno concludes that the dismissal of an employee without notice and hearing, even if for a just cause, as provided in Art. 282, or for an authorized cause, as provided in Arts. 283-284, is a nullity. Hence, even if just or authorized causes exist, the employee should be reinstated with full back pay. On the other hand, Justice Panganiban quotes from the statement in People v. Bocar27 [138 SCRA 166, 170 (1985)] that "[w]here the denial of the fundamental right of due process is apparent, a decision rendered in disregard of that right is void for lack of jurisdiction."

The cases cited by both Justices Puno and Panganiban refer, however, to the denial of due process by the State, which is not the case here. There are three reasons why, on the other hand, violation by the employer of the notice requirement cannot be considered a denial of due process resulting in the nullity of the employee’s dismissal or layoff.

The first is that the Due Process Clause of the Constitution is a limitation on governmental powers. It does not apply to the exercise of private power, such as the termination of employment under the Labor Code. This is plain from the text of Art. III, §1 of the Constitution, viz.: "No person shall be deprived of life, liberty, or property without due process of law. . . ." The reason is simple: Only the State has authority to take the life, liberty, or property of the individual. The purpose of the Due Process Clause is to ensure that the exercise of this power is consistent with what are considered civilized methods.

The second reason is that notice and hearing are required under the Due Process Clause before the power of organized society are brought to bear upon the individual. This is obviously not the case of termination of employment under Art. 283. Here the employee is not faced with an aspect of the adversary system. The purpose for requiring a 30-day written notice before an employee is laid off is not to afford him an opportunity to be heard on any charge against him, for there is none. The purpose rather is to give him time to prepare for the eventual loss of his job and the DOLE an opportunity to determine whether economic causes do exist justifying the termination of his employment.

Even in cases of dismissal under Art. 282, the purpose for the requirement of notice and hearing is not to comply with Due Process Clause of the Constitution. The time for notice and hearing is at the trial stage. Then that is the time we speak of notice and hearing as the essence of procedural due process. Thus, compliance by the employer with the notice requirement before he dismisses an employee does not foreclose the right of the latter to question the legality of his dismissal. As Art. 277(b) provides, "Any decision taken by the employer shall be without prejudice to the right of the worker to contest the validity or legality of his dismissal by filing a complaint with the regional branch of the National Labor Relations Commission."

Indeed, to contend that the notice requirement in the Labor Code is an aspect of due process is to overlook the fact that Art. 283 had its origin in Art. 302 of the Spanish Code of Commerce of 1882 which gave either party to the employer-employee relationship the right to terminate their relationship by giving notice to the other one month in advance. In lieu of notice, an employee could be laid off by paying him a mesada equivalent to his salary for one month.28 [Art. 302 of the Code of Commerce provided:

The factory or shop clerk shall be entitled, in such case, to the salary due for said month.] This provision was repealed by Art. 2270 of the Civil Code, which took effect on August 30, 1950. But on June 12, 1954, R.A. No. 1052, otherwise known as the Termination Pay Law, was enacted reviving the mesada. On June 21, 1957, the law was amended by R.A. No. 1787 providing for the giving of advance notice or the payment of compensation at the rate of one-half month for every year of service.29 [R.A. No. 1052, as amended by R.A. No. 1787, provided:

The Termination Pay Law was held not to be a substantive law but a regulatory measure, the purpose of which was to give the employer the opportunity to find a replacement or substitute, and the employee the equal opportunity to look for another job or source of employment. Where the termination of employment was for a just cause, no notice was required to be given to the employee.30 [Abe v. Foster Wheeler Corp., 110 Phil. 198 (1960); Malate Taxicab and Garage, Inc. v. CIR, 99 Phil. 41 (1956)] It was only on September 4, 1981 that notice was required to be given even where the dismissal or termination of an employee was for cause. This was made in the rules issued by the then Minister of Labor and Employment to implement B.P. Blg. 130 which amended the Labor Code. And it was still much later when the notice requirement was embodied in the law with the amendment of Art. 277(b) by R.A. No. 6715 on March 2, 1989. It cannot be that the former regime denied due process to the employee. Otherwise, there should now likewise be a rule that, in case an employee leaves his job without cause and without prior notice to his employer, his act should be void instead of simply making him liable for damages.

The third reason why the notice requirement under Art. 283 can not be considered a requirement of the Due Process Clause is that the employer cannot really be expected to be entirely an impartial judge of his own cause. This is also the case in termination of employment for a just cause under Art. 282 (i.e., serious misconduct or willful disobedience by the employee of the lawful orders of the employer, gross and habitual neglect of duties, fraud or willful breach of trust of the employer, commission of crime against the employer or the latter’s immediate family or duly authorized representatives, or other analogous cases).

Justice Puno disputes this. He says that "statistics in the DOLE will prove that many cases have been won by employees before the grievance committees manned by impartial judges of the company." The grievance machinery is, however, different because it is established by agreement of the employer and the employees and composed of representatives from both sides. That is why, in Batangas Laguna Tayabas Bus Co. v. Court of Appeals,31 [71 SCRA 470, 480 (1976)] which Justice Puno cites, it was held that "Since the right of [an employee] to his labor is in itself a property and that the labor agreement between him and [his employer] is the law between the parties, his summary and arbitrary dismissal amounted to deprivation of his property without due process of law." But here we are dealing with dismissals and layoffs by employers alone, without the intervention of any grievance machinery. Accordingly in Montemayor v. Araneta University Foundation,32 [77 SCRA 321 (1977)] although a professor was dismissed without a hearing by his university, his dismissal for having made homosexual advances on a student was sustained, it appearing that in the NLRC, the employee was fully heard in his defense.

Not all notice requirements are requirements of due process. Some are simply part of a procedure to be followed before a right granted to a party can be exercised. Others are simply an application of the Justinian precept, embodied in the Civil Code,33 [Civil Code, Art. 19.] to act with justice, give everyone his due, and observe honesty and good faith toward one’s fellowmen. Such is the notice requirement in Arts. 282-283. The consequence of the failure either of the employer or the employee to live up to this precept is to make him liable in damages, not to render his act (dismissal or resignation, as the case may be) void. The measure of damages is the amount of wages the employee should have received were it not for the termination of his employment without prior notice. If warranted, nominal and moral damages may also be awarded.

We hold, therefore, that, with respect to Art. 283 of the Labor Code, the employer’s failure to comply with the notice requirement does not constitute a denial of due process but a mere failure to observe a procedure for the termination of employment which makes the termination of employment merely ineffectual. It is similar to the failure to observe the provisions of Art. 1592, in relation to Art. 1191, of the Civil Code34 [Art. 1191: "The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. . . ."

Art. 1592: "In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term."] in rescinding a contract for the sale of immovable property. Under these provisions, while the power of a party to rescind a contract is implied in reciprocal obligations, nonetheless, in cases involving the sale of immovable property, the vendor cannot exercise this power even though the vendee defaults in the payment of the price, except by bringing an action in court or giving notice of rescission by means of a notarial demand.35 [De la Cruz v. Legaspi, 98 Phil. 43 (1955); Taguba v. Vda. de Leon, 132 SCRA 722 (1984)] Consequently, a notice of rescission given in the letter of an attorney has no legal effect, and the vendee can make payment even after the due date since no valid notice of rescission has been given.36 [See Maximo v. Fabian, G.R. No. L-8015, December 23, 1955, (unpub.), 98 Phil. 989.]

Indeed, under the Labor Code, only the absence of a just cause for the termination of employment can make the dismissal of an employee illegal. This is clear from Art. 279 which provides:

Thus, only if the termination of employment is not for any of the causes provided by law is it illegal and, therefore, the employee should be reinstated and paid backwages. To contend, as Justices Puno and Panganiban do, that even if the termination is for a just or authorized cause the employee concerned should be reinstated and paid backwages would be to amend Art. 279 by adding another ground for considering a dismissal illegal. What is more, it would ignore the fact that under Art. 285, if it is the employee who fails to give a written notice to the employer that he is leaving the service of the latter, at least one month in advance, his failure to comply with the legal requirement does not result in making his resignation void but only in making him liable for damages.38 [Art. 285 reads:

Termination by employee. - (a) An employee may terminate without just cause the employee-employer relationship by serving a written notice on the employer at least one (1) month in advance. The employer upon whom no such notice was served may hold the employee liable for damages.

4. Other causes analogous to any of the foregoing.] This disparity in legal treatment, which would result from the adoption of the theory of the minority cannot simply be explained by invoking President Ramon Magsaysay’s motto that "he who has less in life should have more in law." That would be a misapplication of this noble phrase originally from Professor Thomas Reed Powell of the Harvard Law School.

Justice Panganiban cites Pepsi-Cola Bottling Co. v. NLRC,39 [210 SCRA 277 (1992)] in support of his view that an illegal dismissal results not only from want of legal cause but also from the failure to observe "due process." The Pepsi-Cola case actually involved a dismissal for an alleged loss of trust and confidence which, as found by the Court, was not proven. The dismissal was, therefore, illegal, not because there was a denial of due process, but because the dismissal was without cause. The statement that the failure of management to comply with the notice requirement "taints the dismissal with illegality" was merely a dictum thrown in as additional grounds for holding the dismissal to be illegal.

Given the nature of the violation, therefore, the appropriate sanction for the failure to give notice is the payment of backwages for the period when the employee is considered not to have been effectively dismissed or his employment terminated. The sanction is not the payment alone of nominal damages as Justice Vitug contends.

The refusal to look beyond the validity of the initial action taken by the employer to terminate employment either for an authorized or just cause can result in an injustice to the employer. For not giving notice and hearing before dismissing an employee, who is otherwise guilty of, say, theft, or even of an attempt against the life of the employer, an employer will be forced to keep in his employ such guilty employee. This is unjust.

It is true the Constitution regards labor as "a primary social economic force."40 [Art. II, §18.] But so does it declare that it "recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investment."41 [Id., §20.] The Constitution bids the State to "afford full protection to labor."42 [Art. XIII, §3.] But it is equally true that "the law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer."43 [Manila Trading and Supply Co. v. Zulueta, 69 Phil. 485, 487 (1940) (per Laurel, J.) Accord, Villanueva v. NLRC, 293 SCRA 259 (1998); DI Security and General Services, Inc. v. NLRC, 264 SCRA 458 (1996); Flores v. NLRC, 256 SCRA 735 (1996); San Miguel Corporation v. NLRC, 218 SCRA 293 (1993); Colgate Palmolive Philippines, Inc. v. Ople, 163 SCRA 323 (1988)] And it is oppression to compel the employer to continue in employment one who is guilty or to force the employer to remain in operation when it is not economically in his interest to do so.

In sum, we hold that if in proceedings for reinstatement under Art. 283, it is shown that the termination of employment was due to an authorized cause, then the employee concerned should not be ordered reinstated even though there is failure to comply with the 30-day notice requirement. Instead, he must be granted separation pay in accordance with Art. 283, to wit:

If the employee’s separation is without cause, instead of being given separation pay, he should be reinstated. In either case, whether he is reinstated or only granted separation pay, he should be paid full backwages if he has been laid off without written notice at least 30 days in advance.

On the other hand, with respect to dismissals for cause under Art. 282, if it is shown that the employee was dismissed for any of the just causes mentioned in said Art. 282, then, in accordance with that article, he should not be reinstated. However, he must be paid backwages from the time his employment was terminated until it is determined that the termination of employment is for a just cause because the failure to hear him before he is dismissed renders the termination of his employment without legal effect.

WHEREFORE, the petition is GRANTED and the resolution of the National Labor Relations Commission is MODIFIED by ordering private respondent Isetann Department Store, Inc. to pay petitioner separation pay equivalent to one (1) month pay for every year of service, his unpaid salary, and his proportionate 13th month pay and, in addition, full backwages from the time his employment was terminated on October 11, 1991 up to the time the decision herein becomes final. For this purpose, this case is REMANDED to the Labor Arbiter for computation of the separation pay, backwages, and other monetary awards to petitioner.

Davide, Jr., C.J., Melo, Kapunan, Quisumbing, Purisima, Pardo, Buena, Gonzaga-Reyes, and De Leon, Jr., JJ., concur.