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No corporate alibi in labor cases

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No corporate alibi in labor cases

SOME employers adopt a dismissive attitude toward labor complaints filed against them by their employees in the belief that by doing so, the problem will quietly go away.

They refuse to receive summons from the National Labor Relations Commission (NLRC), ignore its invitations to conciliation meetings and play hide-and-seek with its sheriffs.

The more daring ones dissolve their company but resume operation as a new corporation in another place or, worse, in the same business address. In this scheme, they take refuge in the principle that the corporation has a personality separate and distinct from its stockholders, and that its liabilities cannot be passed on to the stockholders in their personal capacity.

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Under existing rules, if a corporation is dissolved but still has existing obligations, the stockholders can be held liable only to the extent of their unpaid subscriptions, if any. Beyond that, their personal assets are immune from garnishment or attachment to satisfy monetary awards to employees.

Thus, if the corporation is bankrupt, the employees would have to go to regular courts to compel the stockholders to pay their unpaid subscriptions and satisfy the judgment.

But considering the slow pace of justice in our country and its attendant costs, that move would be an exercise in futility.

In a recent case (Jose Emmanuel Guillermo vs Crisanto Uson, G.R. No. 198967, dated March 7, 2016), the Supreme Court ruled the general principle of separate personality of a corporation does not excuse its officers from their obligations to labor.

The case involves an employee of a corporation who was dismissed from the service by its president. He filed before the NLRC a complaint for illegal dismissal and demanded his reinstatement and payment of back wages and other damages.

The president ignored the NLRC processes and did not file the company’s position paper. As a result, the case was decided in the employee’s favor based on the evidence he submitted. Later, the labor arbiter issued a writ of execution against the company to enforce the award.

The company appealed the decision all the way to the Court of Appeals, which upheld the arbiter’s ruling. In the meantime, the company was dissolved and a new corporation took over its operations.

The appellate court issued a new writ of execution, this time against the company’s former officers and directors.

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The company president contested this action before the Supreme Court (SC) on the ground that his inclusion in the writ was irregular since it constituted an amendment of a final decision.

In resolving the case, the SC addressed two issues: first, whether an officer of a corporation may be included as an accountable party in a labor case for the first time after a labor arbiter’s decision had become final and executory; and second, whether the doctrines of “piercing the veil of corporate fiction” and personal liability of company officers in labor cases apply.

The justices stated that a corporation’s standing as a juridical person, whose personality is separate and distinct from its stockholders, may be disregarded (meaning, they will be treated as one and the same) in three situations, namely:

1. When the corporate fiction is used as a vehicle to evade an existing obligation;

2. When the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or

3. Where the corporation is a mere alter ego or business conduit of a person, or was organized to make it an instrumentality, agency or adjunct of another corporation.

When the corporate veil is pierced, the corporation’s liability becomes personal to “the person directly responsible for and who ‘acted in bad faith’ in committing the illegal dismissal or any act violative of the Labor Code.”

Here’s the clincher, if no officer can be clearly identified as directly responsible for the wrong committed, the president will be considered the responsible person.

In the instant case, the SC said the president committed acts that showed he acted in bad faith and with malice in evading the NLRC judgment.

After receiving the initial summons, he snubbed the hearings and failed to submit evidence to controvert the employee’s claim of illegal dismissal. Thereafter, he dissolved the corporation and formed a new one with a different name but engaged in the same business and operated at the same business address.

When the writ of execution was served on him, he used a fictitious name to receive it and denied he was the person mentioned there.

The tribunal thus ruled the president cannot use the corporation’s juridical personality to justify his refusal to comply with the arbiter’s decision.

It declared as valid the inclusion of the president in the writ of execution despite the fact that its underlying decision had already become final. To rule otherwise would be unjust, it said.

The SC’s ruling should be food for thought for corporate officers who take lightly labor complaints filed against their company either as lone respondent or with them as co-respondents.

Well and good if, at the time a writ of execution in favor of a former employee is served, the company has the resources to satisfy the judgment. Their wallets will not be touched.

The story is different if they are included in the complaint in their corporate AND personal capacities (as some labor lawyers do) and the writ is issued when the company is no longer operational or already bankrupt. Their personal funds can be garnished to pay for the monetary award.

For comments, please send your e-mail to “rpalabrica@inquirer.com.ph.

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TAGS: Business, company, Corporate, corporate security, corporation, Labor, labor case, National Labor Relations Commission, Security
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