Veterans Federation of the Philippines v. Eduardo L. Montenejo, Mylene M. Bonifacio, Evangeline E. Valverde, Deana N. Pagal, and VFP Management Development Corporation - G.R. No. 184819 - November 29, 2017

Facts:

On January 4, 1991, VFP entered into a management agreement with VMDC. Under the said agreement, VMDC was to assume management and operation of the Veterans Federation of the Philippines Industrial Area (VFPIA) in exchange for forty percent (40%) of the lease rentals generated from the area.

VDMC hired its own personnel and employees for the management of said area, among of which were respondents Montenejo, Bonifacio, Valverde and Pagal. The management agreement between VFP and VMDC had a term of five (5) years which was renewable for another five (5) years.

On November 1999, the VFP board passed a resolution terminating the management agreement effective December 31, 1999. VMDC conceded to the termination. On January 3, 2000, the President of VMDC issued a memorandum informing the company’s employees of the termination of their services effective at the close of office hours on January 31, 2000 in view of the termination of the management agreement. On the said date, VMDC dismissed all of its employees and paid them their respective separation pay.

Monetenejo, et. al. filed before the Labor Arbiter a complaint for illegal dismissal, money claims, and damages. VMDC posited that the dismissals of respondents were valid due to an authorized cause which was the cessation or closure of its business. VFP also asserted that it could not be held liable under the complaint because it is not the employer of Montenejo, et. al.

The Labor Arbiter dismissed the complaint for illegal dismissal. Meanwhile, the National Labor Relations Commission (NLRC) reversed the decision of the Labor Arbiter. The Court affirmed the decision of the NLRC.

Issues:

1. Whether or not Montenejo, et. al. had been illegally dismissed; and
2. Whether or not VFP may be solidarily held liable with VDMC for any monetary award that may be adjudged in favour of Montenejo, et al.

Ruling:

The petition was granted. The Court ruled that VMDC’s closure was established; the closure was bona fide; and the dismissals of Montenejo,et. al. are based on an authorized cause.

Montenejo, et. al. were dismissed as a result of the closure of VMDC. Said closure qualifies as a bona fide cessation of operations or business as contemplated under Articles 298 of the Labor Code. The dismissals of Montenejo, et. al. were, therefore, premised on an authorized cause. Respondents were only entitled to nominal damages on top of the separation pay under Article 298 of the Labor Code.

One of the authorized causes for dismissal recognized under the Labor Code is the bona fide cessation of business or operations by the employer. Article 298 of the Labor Code explicitly sanctions terminations due to he employer’s cessation of business or operations as long as the cessation is bona fide or is not made for the purpose of circumventing the employees’ right to security of tenure.

It is well-settled in jurisprudence that what can be considered as an invalid cessation of business or operations can be: (1) a company that supposedly closed due to financial losses but was discovered to have revived its operations barely a month after it closed; (2) a company which apparently closed one of its departments; (3) closure of the high school department in a school prompted by a deadlock in the Collective Bargaining Agreement negotiations between a school and its faculty union but was reopened its high school department; and (4) closure of one of its departments by allegedly transferring its operations to a concessionaire. All of the preceding examples have a common characteristic of not genuine closures or cessations of businesses. They are mere simulations which made it appear that the employer intended to close its business or operations when the latter, in truth, had no such intention.

To unmask the true intent of an employer when effecting a closure of business, it is important to consider not only the measures adopted by the employer prior to the purported closure but also the actions taken by the latter after the fact.

The closure of VMDC was duly proven and can be inferred from other facts that were established by the records and were not refuted by the parties such as: (1) the fact that VMDC had turned over possession of all buildings, equipment, and other properties necessary to the operation of the VFPIA to VFP; and (2) the fact that on January 31, 2000, VMDC had dismissed all of its officials and employees.

The decision of VMDC to cease its operations after the termination of the management agreement is, under the law, a lawful exercise by the company’s leadership of its management prerogative that must perforce be upheld where, as in this case, there is an absence of showing that the cessation was made for prohibited purposes. The dismissals cannot be regarded as illegal because they were predicated upon an authorized cause recognized by law.

Montenejo, et. al. are not entitled to monetary awards adjudged in their favour by the NLRC but only to separation pay under Article 298 of the Labor Code. The awards for full backwages and separation pay in lieu of reinstatement cannot be sustained as these awards are reserved by law and jurisprudence for employees who were illegally dismissed.

The ruling in Agabon v. NLRC states that when a dismissal is based on a just cause but is implemented without observance of the statutory notice requirements, the dismissal should be upheld as valid but the employer must thereby pay an indemnity to the employee in the amount of PHP 30,000.

Meanwhile, the ruling in Jaka Food Processing Corporation v Pacot increased the amount of indemnity payable by the employer in cases where the dismissals are based on authorized causes but have been effected without observance of the notice requirements. In this scenario, the indemnity was increased to PHP 50,000.

The doctrine of piercing the veil of corporate fiction does not apply to this case. The doctrine of piercing the veil of corporate fiction is a legal precept that allows a corporation’s separate personality to be disregarded under certain circumstances, so that a corporation and its stockholders or members, or a corporation and another related corporation could be treated as a single entity. This doctrine will apply only in cases where the separate corporate personality of a corporation is being abused or being used for wrongful purposes.

As laid down in Concept Builders, Inc. v. NLRC, the test to determine when it would be proper to apply the doctrine of piercing the veil of corporate fiction would be:
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 plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate veil. As also laid down in Rufina Luy Lim v. CA, 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 a sufficient reason for disregarding the fiction of separate corporate personalities. To disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly established. It cannot be presumed.

In fine, the exclusive liability for nominal damages rests on VMDC.