Zambrano vs. Philippine Carpet Manufacturing Corporation
G.R. No. 224099, June 21, 2017
Second Division, [Mendoza, J.,]
Facts:
The
petitioners averred that they were employees of private respondent Philippine
Carpet Manufacturing Corporation (Phil Carpet). On January 3, 2011, they
were notified of the termination of their employment effective February 3, 2011
on the ground of cessation of operation due to serious business losses. They
were of the belief that their dismissal was without just cause and in violation
of due process because the closure of Phil Carpet was a mere pretense to
transfer its operations to its wholly owned and controlled corporation, Pacific
Carpet Manufacturing Corporation (PacificCarpet). They claimed that the
job orders of some regular clients of PhilCarpet were transferred to Pacific
Carpet; and that from October to November 2011, several machines were moved
from the premises of Phil Carpet to Pacific Carpet. They asserted that their
dismissal constituted unfair labor practice as it involved the mass dismissal
of all union officers and members of the Philippine Carpet Manufacturing
Employees Association (PHILCEA).
In its
defense, Phil Carpet countered that it permanently closed and totally ceased
its operations because there had been a steady decline in the demand for its
products due to global recession, stiffer competition, and the effects of a
changing market. Thus, in order to stem the bleeding, the company implemented
several cost-cutting measures, including voluntary redundancy and early
retirement programs. In 2007, the car carpet division was closed. Moreover,
from a high production capacity of about 6,000 square meters of carpet a month
in 2002, its final production capacity steadily went down to an average of 350
square meters per month for 2009 and 2010. Subsequently, the Board of Directors
decided to approve the recommendation of its management to cease manufacturing
operations. The termination of the petitioners' employment was effective as of
the close of office hours on February 3, 2011. Phil Carpet likewise faithfully
complied with the requisites for closure or cessation of business under the
Labor Code. The petitioners and the Department of Labor and Employment (DOLE)
were served written notices one (1) month before the intended closure of the
company. The petitioners ·were also paid their separation pay and they
voluntarily executed their respective Release and Quitclaim before the DOLE
officials.
Labor Arbiter (LA)
dismissed the complaints for illegal dismissal and unfair labor practice. It
ruled that the termination of the petitioners' employment was due to total
cessation of manufacturing operations of Phil Carpet because it suffered
continuous serious business losses from 2007 to 2010. The LA further found that
the petitioners voluntarily accepted their separation pay and other benefits
and eventually executed their individual release and quitclaim in favor of the
company. Finally, it declared that there was no showing that the total closure
of operations was motivated by any specific and clearly determinable union
activity of the employees.
NLRC affirmed the
findings of the LA. CA ruled that the total cessation of Phil Carpet's
manufacturing operations was not made in bad faith because the same was clearly
due to economic necessity. It determined that there was no convincing evidence
to show that the regular clients of Phil Carpet secretly transferred their job
orders to Pacific Carpet; and that Phil Carpet's machines were not transferred
to Pacific Carpet but were actually sold to the latter after the closure of
business as shown by the several sales invoices and official receipts issued by
Phil Carpet. The CA adjudged that the dismissal of the petitioners who were
union officers and members of PHILCEA did not constitute unfair labor practice
because Phil Carpet was able to show that the closure was due to serious
business losses.
Issue 1:
Whether
the petitioners were dismissed from employment for a lawful cause.
Held:
No; the
petitioners were terminated from employment for an authorized cause. Article
298. Closure of establishment and reduction of personnel. -The employer may
also terminate the employment of any employee due to the installation of
labor-saving devices, redundancy, retrenchment to prevent losses or the closing
or cessation of operations of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Department of Labor and
Employment at least one (1) month before the intended date thereof. In case of
termination due to the installation of labor-saving devices or redundancy, the
worker affected thereby shall be entitled to a separation pay equivalent to at
least one (1) month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent losses and in
cases of closure or cessation of operations of establishment or undertaking not
due to serious business losses or financial reverses, the separation pay shall
be equivalent to at least one (1) month pay or at least one-half (1/2) month
pay for every year of service, whichever is higher. A fraction of at least six
(6) months shall be considered as one (1) whole year.
Closure
of business is the reversal of fortune of the employer whereby there is a
complete cessation of business operations and/or an actual locking-up of the
doors of establishment, usually due to financial losses. Closure of business,
as an authorized cause for termination of employment, aims to prevent further
financial drain upon an employer who cannot pay anymore his employees since
business has already stopped. In such a case, the employer is generally
required to give separation benefits to its employees, unless the closure is
due to serious business losses.
Issue 2:
Whether
the petitioners’ termination from employment constitutes unfair labor practice.
Held:
No;
the dismissal of the petitioners did not amount to unfair labor practice.
Unfair labor practice refers to acts that violate the workers' right to
organize. There should be no dispute that all the prohibited acts constituting
unfair labor practice in essence relate to the workers' right to
self-organization. Thus, an employer may only be held liable for unfair labor
practice if it can be shown that his acts affect in whatever manner the right
of his employees to self-organize.
The
general principle is that one who makes an allegation has the burden of proving
it. Although there are exceptions to this general rule, in the case of unfair
labor practice, the alleging party has the burden of proving it. Moreover, good
faith is presumed and he who alleges bad faith has the duty to prove the same.
The
petitioners miserably failed to discharge the duty imposed upon them. They did
not identify the acts of Phil Carpet which, they claimed, constituted unfair
labor practice. They did not even point out the specific provisions which Phil
Carpet violated. Thus, they would have the Court pronounce that Phil Carpet
committed unfair labor practice on the ground that they were dismissed from
employment simply because they were union officers and members. The
constitutional commitment to the policy of social justice, however, cannot be
understood to mean that every labor dispute shall automatically be decided in
favor of labor.
Issue 3:
Whether
Pacific Carpet may be held liable for Phil Carpet’s obligation.
Held:
No; a
corporation is an artificial being created by operation of law. It possesses
the right of succession and such powers, attributes, and properties expressly
authorized by law or incident to its existence. It has a personality separate
and distinct from the persons composing it, as well as from any other legal
entity to which may be related.
Equally
well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or
of another corporation. For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled only when it becomes a
shield for fraud, illegality or inequity committed against third persons.
Further,
the Court's ruling in Philippine National Bank vs. Hydro Resources Contractors
Corporation is enlightening, viz.: The doctrine of piercing the corporate veil
applies only in three (3) basic areas, namely: 1) defeat of public convenience
as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
In this connection, case law lays
down a three-pronged test to determine the application of the alter ego theory,
which is also known as the instrumentality theory, namely:
(1)
Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own;
(2)
Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiffs legal right; and
(3)
The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.
The
first prong is the "instrumentality" or "control" test. This test requires that
the subsidiary be completely under the control and domination of the parent. It
examines the parent corporation's relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs
are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity
will be ignored. It seeks to establish whether the subsidiary corporation has
no autonomy and the parent corporation, though acting through the subsidiary in
form and appearance, "is operating the business directly for itself."
The
second prong is the "fraud"
test. This test requires that the parent corporation's conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful.1âwphi1 It
examines the relationship of the plaintiff to the corporation. It recognizes
that piercing is appropriate only if the parent corporation uses the subsidiary
in a way that harms the plaintiff creditor. As such, it requires a showing of
"an element of injustice or fundamental unfairness."
The third prong is the
"harm" test. This test requires the plaintiff to show that the
defendant's control, exerted in a fraudulent, illegal or otherwise unfair
manner toward it, caused the harm suffered. A causal connection between the
fraudulent conduct committed through the instrumentality of the subsidiary and
the injury suffered or the damage incurred by the plaintiff should be
established. The plaintiff must prove that, unless the corporate veil is
pierced, it will have been treated unjustly by the defendant's exercise of
control and improper use of the corporate form and, thereby, suffer damages.
To
summarize, piercing the corporate veil based on the alter ego theory requires
the concurrence of three elements: control of the corporation by the stockholder or parent corporation,
fraud or fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The
absence of any of these elements prevents piercing the corporate veil.
The Court finds that none of the
tests has been satisfactorily met in this case. Although ownership by one corporation of all or a great majority of
stocks of another corporation and their interlocking directorates may serve as
indicia of control, by themselves and without more, these circumstances are
insufficient to establish an alter ego relationship or connection between Phil Carpet on the one hand and
Pacific Carpet on the other hand, that will justify the puncturing of the
latter's corporate cover.
This
Court has declared that "mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality." It has likewise
ruled that the "existence of interlocking
directors, corporate officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of fraud or other public
policy considerations."
It
must be noted that Pacific Carpet was registered with the Securities and
Exchange Commission on January 29, 1999, such that it could not be said that
Pacific Carpet was set up to evade Phil Carpet's liabilities. As to the
transfer of Phil Carpet's machines to Pacific Carpet, settled is the rule that
"where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable
for the debts and liabilities of the transferor. "
Issue 4:
Whether
the quitclaims signed by the petitioners are valid and binding.
Held:
Yes; the
quitclaims were valid and binding upon the petitioners.
Where
the person making the waiver has done so voluntarily, with a full understanding
thereof, and the consideration for the quitclaim is credible and reasonable,
the transaction must be recognized as being a valid and binding undertaking.
Not all quitclaims are per se invalid or against policy, except (1) where there
is clear proof that the waiver was wangled from an unsuspecting or gullible
person, or (2) where the terms of settlement are unconscionable on their face;
in these cases, the law will step in to annul the questionable transactions.
In
this case, the petitioners question the validity of the quitclaims they signed
on the ground that Phil Carpet's closure was a mere pretense. As the closure of
Phil Carpet, however, was supported by substantial evidence, the petitioners'
reason for seeking the invalidation of the quitclaims must necessarily fail.
Further, as aptly observed by the CA, the contents of the quitclaims, which
were in Filipino, were clear and simple, such that it was unlikely that the
petitioners did not understand what they were signing. Finally, the amount they
received was reasonable as the same complied with the requirements of the Labor
Code.