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Is contracting a debt or non-payment thereof a ground for dismissal?

There are three cases where our Supreme Court ruled differently.

First, the 14 September 2022 Resolution in CVM Finance & Credit Corp. v. Fuentes, GR 248934.

The facts are: a lending company dismissed its manager for unpaid personal debt of P175,00 from a co-worker who made a cash advance from CVM. It dismissed Fuentes for loss of trust as it found the loan transaction fraudulent. An illegal dismissal case was filed. The Labor Arbiter found no merit and ruled that there is a connection between CMV business as a lending company and position of Fuentes as manager. She abused her position when she ordered her co-employee to make a cash advance.

On appeal, the NLRC reversed the ruling as it found no proof how power was abused in getting a loan from a co-worker. On appeal by CVM, the Court of Appeals ruled that no fraud was committed since the loan is a private affair. Failure to settle personal loan is neither dishonest nor deceitful conduct in the performance of her duties that would justify loss of trust and confidence.

CVM appealed. The Supreme Court affirmed the CA decision and ruled that: to invoke loss of trust and confidence as just cause for termination of employment, proof must be shown that the dismissed employee occupied a position of trust and confidence; and committed an act justifying the loss of trust and confidence.

It must be work-related and founded on clearly established facts. It must rest on substantial grounds and not on employer’s arbitrariness or suspicion. There is no moral depravity nor any abuse of authority on Fuentes. Failure to pay the loan on time is not a grave offense that will put a dent on her capacity as a manager in a lending business. In this case, contracting a debt and non-payment is not a ground to dismiss an employee from work.

In the second case: a US-based charitable institution with extension office in Olangapo City helping Amerasian youth in the Philippines hired a school teacher in 1974, but was dismissed in 1985 when she borrowed twice from one of the wards [beneficiaries] assigned to her.

It learned about the loan when the ward’s mother ask help to collect the debt of P3,000. After paying the debt, she was terminated. She filed a complaint for illegal dismissal. The Labor Arbiter ruled that she is guilty of serious misconduct resulting to loss of trust and confidence.

On appeal, the NLRC ruled that borrowing money is not a ground for termination. The loan is a personal transaction of which the employer is not a party and thus has no basis to dismiss. The employer appealed to the Supreme Court. It ruled that an apparent impropriety was committed, which violated the employer’s trust. There may have been no contractual rule of employment that employees should have no commercial and other dealings with parents of wards. Borrowing money is neither dishonest, nor immoral, nor illegal, much less criminal. But, said act becomes a serious misconduct that may be a ground for dismissal when reprehensible behavior such as the use of a trust relationship as a leverage for borrowing money is involved.

A recipient of largesse may be so grateful that out of a sense of “utang na loob” she may lend money to an employee believing that the loan would be paid anyway. In this case, the fact that Aliarte has retracted her complaint is of no moment. The NLRC must take cognizance of the laudable purpose of the foundation’s existence and the fact that it attains its aims through donations. It should have considered that a higher degree of prudence is required of the foundation’s employees, especially when it comes to financial matters. The very nature of the source of its existence – begging for donation to help Amerasian only to get a loan from the beneficiaries – require employees possess and function by a more strict ethical standard. In this case of Pearl S. Buck Foundation, Inc. v. NLRC, G.R. No. 80728 dated 21 February 1990, the act of contracting a debt is a valid ground to dismiss an employee due to her fiduciary relation to her ward and the charitable nature of the function of her employer.

The third case is Santos v. Raymundo, A.M. No. P-08-2555 dated 26 November 2019 where the rule is different to government employees. Non-payment of debt is a ground for dismissal. It is even more strict to court employees that obtaining loan from litigant will result not only to dismissal, but also forfeiture of retirement benefits.


(Comments and suggestions may be emailed to [email protected].)

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