Corporate Officers and their Labor Claims

A corporate officer is distinct from an ordinary officer or employee of a corporation, and the law explicitly recognizes this distinction.

The Revised Corporation Code (RCC) mandates that every corporation must have the following officers:

• President;
• Treasurer;
• Corporate Secretary;
• Compliance Officer for corporations vested with public interest; and
• Such other officers as may be provided in the bylaws.

(Sec. 24, RCC).

These officers are mandatory and fixed under our corporation law, meaning they are essential to corporate governance.

Corporate officers are treated differently from ordinary officers and employees, as underscored by the Supreme Court. The Court has ruled that the dismissal of a corporate officer is always a corporate act or an intra-corporate controversy and, because of this, disputes concerning their termination or non-appointment fall under the jurisdiction of the Securities and Exchange Commission (SEC) rather than rather than the labor courts — National Labor Relations Commission (NLRC), for ordinary officers and employees. (Ongkingo v. NLRC, GR No. 119877, March 31, 1997)

Note however, with the passage of Republic Act No. 8799, also known as the Securities Regulation Code of 2000, these cases are now filed with the Regional Trial Courts.

The case of Matling Industrial and Commercial Corporation (Matling Corp.), et al. v. Coros (GR 157802, October 13, 2010) is instructive as it explained what a corporate officer is as compared to ordinary officers and employees. It is also instructive in that the Court explained that not every conflict between a corporation and its stockholders involves intra corporate matters which only the regular courts can resolve.

Mr. Ricardo Coros was the Vice President for Finance and Administration and a member of the Board of Directors of the company when he was terminated by Matling Corp. Because of this, he filed an Illegal Dismissal Case against the company with the NLRC.

Matling Corp. moved to dismiss the complaint on the ground that Mr. Coros was a corporate officer thus, the NLRC did not have jurisdiction over the illegal dismissal complaint.

The Labor Arbiter agreed with Matling Corp. and dismissed the complaint but this was reversed by the NLRC, Court of Appeals and finally, the Supreme Court, which all declared that Mr. Coros was not a Corporate Officer, but an ordinary officer. Therefore, his illegal dismissal complaint was properly filed with the NLRC.

In its decision, the Supreme Court explained that where the complaint for illegal dismissal concerns a corporate officer, the controversy falls under the jurisdiction of the ordinary courts (Regional Trial Court) because the controversy arises out of intra-corporate relations between and among stockholders, or because the controversy involves the election or appointment of a director, trustee, officer, or manager of such corporation.

While the company’s By-Laws only listed 4 corporate officers, namely, the President, Executive Vice-President, Secretary and Treasurer, Matling Corp. argued that the position of Vice President for Finance and Administration was a corporate office because it was created by Matling Corp.’s President pursuant to the corporation’s By-Law provision no. V which provided that “The President . . . shall have full power to create new offices and to appoint the officers thereto as he may deem proper and necessary.”

The Supreme Court rejected this contention as follows.

The SEC, which is the primary agency administering the Corporation Code, had previously issued an Opinion dated November 25, 1993, which stated that pursuant to Section 25 of the Corporation Code (now Section 24 of the RCC), whoever are the corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other Offices without amending first the corporate By-laws.

The Board may, however, create appointive positions other than the positions of corporate officers, but the persons occupying such positions will not be considered as corporate officers within the meaning of Section 25 of the Corporation Code.

Moreover, the Supreme Court also noted that the Board of Directors of Matling could not validly “delegate” the power to create a corporate office to the President because the Corporation Code requires that the Board of Directors shall itself elect the corporate officers. This means that the power to elect the corporate officers was a power that the law exclusively vests in the Board of Directors which could not be delegated to subordinate officers or agents.

As a result, the By-Law provision authorizing the President to appoint officers of the corporation merely allowed him to create non-corporate offices to be occupied by ordinary officers and employees to assist him in the daily operations of the business.

Based on the foregoing, Mr. Coros was declared to not be a corporate officer but only an ordinary officer and it is the NLRC that has jurisdiction to decide his illegal dismissal complaint.

On Intra-Corporate Disputes

Lastly, the Supreme Court found that Mr. Coros’ status as Director and stockholder of the corporation did not convert his dismissal into an intra corporate dispute because he was not appointed as Vice President by virtue of his being a stockholder or Director.

In addition, Mr. Coros started working for Matling in 1966 and continuously for 33 years where he started as bookkeeper working his way up to the position of Vice President. Even though he may have become a stockholder of the company in 1992, his promotion to Vice President in 1987 was due to the length and quality of his services as an employee. Aside from this, Mr. Coros’ status as Director/stockholder was unaffected by his dismissal from employment as Vice President.

Significantly, the Supreme Court clarified that not every conflict between a corporation and its stockholders involves an intra corporate dispute. If, for example, a person leases an apartment owned by a corporation of which he is a stockholder, an action for ejectment for non-payment of rentals is an ordinary civil action and not an intra corporate dispute. By the same token, if one person injures another in a vehicular accident, the complaint for damages filed by the victim is not an intra corporate dispute simply because of the happenstance that both parties are stockholders of the same corporation.

The better policy to be followed in determining whether a dispute is an intra corporate dispute is to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is the subject of their controversy.

(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)