1) Concept and Legal Basis

Loss of Trust and Confidence (LTC) is a just cause for termination under the Labor Code. It applies when an employee—because of the nature of the job—is expected to act with fidelity and integrity, and the employer has a factual basis to conclude that the employee can no longer be relied upon.

Under the current numbering of the Labor Code, just causes for termination are found in Article 297 (formerly Article 282). “Fraud” and “willful breach of trust” are explicit just causes; LTC is the umbrella doctrine commonly used when the employee’s conduct involves dishonesty, fraud, misappropriation, conflict of interest, serious integrity issues, or other acts that destroy the employer’s trust.

Two pillars must be satisfied:

Substantive due process (there is a valid just cause supported by evidence), and
Procedural due process (the employer observed the required notices and opportunity to be heard).

If either pillar fails, the dismissal becomes defective—invalid if the cause is not proven; procedurally defective if the cause is proven but due process was not followed.

2) Who Can Be Dismissed for Loss of Trust and Confidence

Philippine jurisprudence recognizes two broad categories:

A. Managerial Employees

These are employees who:

lay down and execute management policies; and/or
have authority to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline employees; or effectively recommend such actions.

Standard applied: Employers are given wider latitude in dismissing managerial employees for LTC because they occupy positions that inherently require a higher degree of trust.

That said, dismissal cannot be based on whim. The employer must still show a reasonable, factual basis for the loss of trust.

B. Fiduciary Rank-and-File Employees (Positions of Trust)

These are non-managerial employees who, by the nature of their functions, routinely handle:

money or cash;
property or inventory;
sensitive records;
confidential business information; or
functions where integrity is essential (e.g., cashiers, tellers, auditors, bookkeepers, property custodians, collectors, warehouse personnel with custody duties).

Standard applied: For rank-and-file in positions of trust, the law requires more careful scrutiny. Loss of trust must be based on:

a willful breach of trust, and
clearly established facts (not mere suspicion, rumor, or generalized allegations).

3) Substantive Requirements: What Must Be Proven

LTC is not a “catch-all” ground. It is valid only when these elements are present:

A. The employee holds a position of trust

The role must be managerial, or fiduciary in nature.

B. The employee committed an act that justifies loss of trust

The act usually involves dishonesty or integrity-related misconduct. Common examples:

falsification of documents;
unauthorized transactions;
fraud, padding, or manipulation of records;
misappropriation or unexplained shortages tied to the employee’s custody duties;
receiving kickbacks or having undisclosed conflicts of interest;
leaking confidential information;
serious violations of compliance rules when the role requires strict integrity.

C. The loss of trust must be genuine and work-related

It must be:

real, not simulated;
not a pretext to remove a disliked employee, bust a union, or avoid regularization; and
connected to the employee’s work and the employer’s legitimate business interests.

D. The employer must have substantial evidence

Labor cases do not require proof beyond reasonable doubt. The employer must present substantial evidence—relevant evidence that a reasonable mind might accept as adequate to justify the conclusion.

Important:

An employer does not need a criminal conviction to dismiss for LTC.
But dismissal cannot rest on bare accusations; the employer must show facts (audit results, documents, transaction trails, CCTV logs, admissions, policy violations, etc.).

E. Timing and consistency matter

Employers are expected to act with reasonable promptness upon discovery. Undue delay, inconsistent treatment of similarly situated employees, or “forgiveness/condonation-like” behavior may weaken an LTC case.

4) Procedural Due Process for Just Cause Termination (Twin-Notice Rule)

Even if LTC is substantiated, the employer must observe procedural due process. The general framework for just causes is the two-notice rule, plus an opportunity to be heard.

First Written Notice (Notice to Explain / Charge Sheet)

This must:

Specify the acts or omissions complained of (with dates, transactions, circumstances);
Cite the company rule/policy violated (if applicable) and/or the ground under law (breach of trust, fraud);
Direct the employee to submit a written explanation; and
Give the employee a reasonable period to respond (commonly at least 5 calendar days is observed in practice and DOLE rules).

Practical tip: Vague notices (“loss of trust,” “integrity issue”) are risky. Notices should be factual and particularized.

Opportunity to Be Heard (Administrative Conference/Hearing)

This requirement is satisfied when the employee is given a real chance to respond and defend themselves—through:

a written explanation, and/or
a conference or hearing.

A formal trial-type hearing is not always required, but a conference is strongly advisable when:

the employee requests it;
there are factual disputes; or
the potential penalty is dismissal.

The essence is meaningful opportunity to explain and to present evidence.

Second Written Notice (Notice of Decision / Notice of Termination)

After evaluation, the employer must issue a second notice stating:

that all circumstances were considered;
the factual findings and basis; and
the decision to dismiss, with the effective date of termination.

Key rule: The termination decision should come after the employee has been given the chance to respond. Termination that is “already decided” before the process undermines due process.

5) Effectivity of Termination: When Dismissal Legally Takes Effect

A. General rule

For just-cause termination (including LTC), effectivity is tied to the employer’s final decision, typically:

the date stated in the Notice of Termination, or
the date the employee receives the Notice of Termination (if receipt occurs later and the employer cannot prove earlier proper service).

Employers should avoid retroactive effectivity dates that predate the completion of due process.

B. Serving the termination notice

Best practice is service with proof:

personal service with acknowledgment;
registered mail/courier to last known address; and/or
company-authorized electronic service (if your policies and proof of receipt support it).

If the employee refuses to receive, employers typically document refusal (witnessed refusal notation) and send by registered mail.

C. Final pay and clearances do not control effectivity

The fact that final pay/clearance is processed later does not automatically move the termination date. Effectivity is determined by the termination notice and proper service, not by back-end processing.

6) Preventive Suspension While Investigating LTC

In LTC cases involving possible fraud, dishonesty, or threats to company property/records, employers often use preventive suspension pending investigation.

When allowed

Preventive suspension is generally justified when the employee’s continued presence poses a serious and imminent threat to:

life or property of the employer or coworkers; or
the integrity of records, evidence, funds, or operations.

Duration

A commonly applied rule is that preventive suspension should not exceed 30 days. If the investigation must continue beyond that period, employers typically must either:

reinstate the employee (even if only in a non-sensitive assignment), or
pay wages for the extended period (depending on circumstances and applicable rules/practices).

Preventive suspension is not a penalty; it is a holding measure. Abusing it can create liability.

7) Separation Pay, Backwages, and Monetary Consequences

A. If dismissal for LTC is valid (substantive and procedural due process complied with)

No separation pay is generally due for just causes.
The employee is entitled to:
- final pay (unpaid wages, prorated 13th month pay, unused leave conversions if company policy/contract grants it, etc.),
- statutory documents (e.g., Certificate of Employment upon request).

B. If LTC is valid but due process was not followed

Courts commonly treat this as procedurally defective dismissal: the dismissal may remain effective (because there is just cause), but the employer may be ordered to pay nominal damages for violating due process requirements.

C. If LTC is not proven (no substantial evidence / not a position of trust / act not willful or not factual)

The dismissal is typically illegal, exposing the employer to:

reinstatement (or separation pay in lieu of reinstatement in proper cases),
full backwages, and
possibly other monetary awards depending on the case.

8) Common Reasons LTC Dismissals Fail in Labor Cases

Employee not actually in a position of trust, or the trust aspect is exaggerated by job title alone.
No clearly established facts—the case is built on suspicion, hearsay, or “gut feel.”
Mismatch between the offense and the ground—ordinary negligence, poor performance, or minor rule breaches are forced into LTC.
No willfulness for rank-and-file—mistake or inadvertence is treated as breach of trust without showing intentionality.
Defective notices—generic charge sheets, missing particulars, or not giving reasonable time to respond.
No genuine opportunity to be heard—employee was ignored, or termination notice was prepared before the explanation was considered.
Inconsistent enforcement—others who committed similar acts were not penalized, suggesting pretext.
Delay or condonation-like conduct—employer sits on the issue too long, continues to entrust duties, then suddenly dismisses.

9) Drafting Guidance: What a Strong Notice Package Usually Contains

Notice to Explain should include:

incident summary with dates, amounts, transaction IDs, documents referenced;
custody/responsibility link (why this employee is accountable);
violated rules (code of conduct, SOP, anti-fraud policy);
directive to explain and submit supporting documents;
schedule of conference (or invitation to request one);
warning that dismissal is a possible penalty.

Notice of Termination should include:

recap of the charge and the employee’s explanation;
findings supported by evidence (audit trail, documents, admissions);
basis for concluding breach of trust and why continued employment is untenable;
penalty imposed and effective date;
instruction on final pay processing and return of property.

10) Special Situations and Practical Notes

A. Pending criminal cases

Termination for LTC can proceed independently. However, if the employer relies on criminal allegations, it must still show substantial evidence in the administrative context.

B. Company policies and CBAs

If a company handbook or CBA prescribes additional steps (grievance machinery, panel hearing, timelines), failure to follow them can weaken the employer’s case—even if the Labor Code’s minimum steps were observed.

C. “Floating status,” transfers, and demotions

Employers sometimes respond to trust issues by reassigning employees. Reassignments must be legitimate, not punitive, and not tantamount to constructive dismissal (e.g., demotion in rank/pay or unreasonable assignment).

D. Confidential employees

Employees with access to sensitive information can be covered by LTC, but employers still need specific facts showing the integrity breach, not general anxieties.

11) Compliance Checklist for Employers (Practical Roadmap)

Confirm position of trust (managerial or fiduciary rank-and-file).
Secure evidence early (audit, logs, CCTV, documents, affidavits).
Consider preventive suspension only if there is a real risk.
Issue a specific Notice to Explain and allow reasonable time to respond.
Provide an administrative conference (especially if requested or disputed facts exist).
Evaluate all submissions; document deliberations.
Issue a Notice of Termination stating facts, basis, and effective date.
Process final pay and statutory documents; retrieve company property properly.
Keep a litigation-ready file: notices, proof of service, minutes, evidence matrix.

12) Key Takeaways

Loss of Trust and Confidence is a serious just cause, but it is not automatic and not a substitute for weak evidence.
The law distinguishes between managerial and fiduciary rank-and-file employees; the latter requires clearer proof and willfulness.
A valid LTC dismissal requires both:
- substantial evidence (substantive due process), and
- twin notices + opportunity to be heard (procedural due process).
Effectivity generally follows the final termination notice and proper service—avoid retroactive dates and premature termination before due process concludes.

If you want, I can also provide (1) a model Notice to Explain, (2) a model Notice of Termination for an LTC scenario, and (3) a one-page evidence checklist tailored to common cases like cash shortages, falsification, or conflict of interest.