American Power Conversion Corporation vs. Lim

A redundancy scheme implemented as an integral part of an employer's illegal business arrangement—operating an unregistered foreign enterprise to evade regulation and taxation—is null and void, and all entities and officers who benefited from the employee's services and participated in the fraudulent scheme are jointly and severally liable for backwages, damages, and attorney's fees under quasi-contract and unjust enrichment principles.

Respondent Jayson Yu Lim was hired in 1998 by American Power Conversion Corporation (APCC), an American corporation engaged in designing, developing, manufacturing, and marketing power protection and management solutions, to serve as Country Manager of its Philippine Sales Office, which was not registered with the Securities and Exchange Commission (SEC). The only SEC-registered APC entity then was American Power Conversion (Phils.), Inc. (APCPI), which held manufacturing and production facilities in Cavite and Laguna and was licensed only to manufacture computer-related products. In 2002, American Power Conversion (Phils.) B.V. (APCP BV) was established in the country, acquired APCPI, and continued its business. Multiple APC entities—APCC (USA), American Power Conversion Singapore Pte. Ltd. (APCS), APCP BV (Philippines), and APC Japan—exercised supervision and control over respondent at various times, all in furtherance of APCC's objective of conducting business in the Philippines without government registration, regulation, or taxation.

On July 1, 1998, respondent Jayson Yu Lim was hired to serve as Country Manager of American Power Conversion Philippine Sales Office, which was not registered with the SEC but functioned as a liaison office for American Power Conversion Corporation (APCC), an American corporation engaged in designing, developing, manufacturing, and marketing power protection and management solutions. The only SEC-registered APC entity then was American Power Conversion (Phils.), Inc. (APCPI), with manufacturing facilities in Cavite and Laguna. Because APCC's Philippine Sales Office was unregistered but doing business in the country, respondent was included in APCPI's employee list and payroll. He was also instructed to create a petty cash fund using his own personal bank account to answer for the day-to-day operations of the sales office. In 2002, American Power Conversion (Phils.) B.V. (APCP BV) was established, acquired APCPI, and continued the latter's business in the country.

In November 2004, respondent was promoted to Regional Manager for APC North ASEAN, a division of APC ASEAN, handling sales and marketing operations for Thailand, the Philippines, Vietnam, Myanmar, Cambodia, Laos, and Guam. He reported directly to Larry Truong, Country General Manager for APC ASEAN and an officer of APCC, who was not connected with APCP BV. In 2005, Truong was replaced by petitioner George Kong. During their stint with Kong, respondent and David Shao (Regional Manager for South ASEAN) discovered irregularities committed by Kong, which they reported in late August 2005 to Leanne Cunnold, General Manager for APC-South and Kong's immediate superior. Cunnold took the matter up with petitioner Alicia Hendy, Human Resource Director for APCP BV. Respondent and Shao also brought the matter to David Plumer, Vice President for Asia Pacific of APC Japan, who advised them to discuss it directly with Kong.

Upon learning of the report against him, Kong sent three e-mail messages on September 8, 2005 to respondent and the other six members of the sales and marketing team, expressing displeasure and remarking in the last message, "and finally, thank you for the 7 knives in my back." On September 30, 2005, Kong and Hendy met with Shao, who was asked to resign; when he refused, he was terminated immediately. The Letter of Termination handed to him did not specify any reason and was written on the stationery of American Power Conversion Singapore Pte. Ltd. (APCS), signed by its Human Resource Manager, Samantha Phang. Thereafter, Kong arrived in the Philippines and met with respondent on October 17, 2005, informing him of a supposed company restructuring that rendered his position redundant. Respondent was furnished a Termination Letter of even date, stating that management had decided to reconfigure the APAC Sales function and declaring the position of Regional Manager — North ASEAN redundant, effective close of business on November 17, 2005.

On December 8, 2005, respondent's counsel proceeded to the DOLE to verify whether petitioners had filed the requisite notice of termination. A Certification from the DOLE confirmed that there was no record on file from September 1, 2005 to November 30, 2005 of any notice of termination filed by any of the petitioners. Respondent was paid severance pay but demanded reinstatement, backwages, allowances, and damages. Petitioners refused, asserting through APCC's counsel that respondent was lawfully terminated on the ground of redundancy and that APCC had complied with the procedure and paid separation pay. Respondent then filed a labor case for illegal dismissal and recovery of money claims. The Labor Arbiter found the dismissal illegal, ruling that the redundancy was a guise for retaliatory action, that petitioners failed to present sufficient evidence of restructuring, and that the DOLE notice requirement was not complied with. The NLRC reversed, finding valid redundancy based on organizational charts and restructuring evidence, but awarded ₱30,000 in nominal damages for the procedural lapse. The CA reversed the NLRC, finding grave abuse of discretion and reinstating the Labor Arbiter's decision with modifications.

• Certiorari Jurisdiction: Petitioners argued that the CA erred in exercising its certiorari jurisdiction without a finding that the NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction, and that respondent failed to raise any ground justifying the CA's exercise of certiorari jurisdiction.
• Factual Findings: Petitioners maintained that the CA erred in revisiting and reversing the NLRC's factual findings solely on the ground of a supposed divergence of views between the Labor Arbiter and the NLRC.
• Validity of Redundancy: Petitioners argued that the NLRC's finding of valid redundancy was substantially supported by evidence on record, including a new staffing pattern/organizational chart, a series of proposals and extensive feasibility studies, new job descriptions for the new positions, and approval by management of the restructuring scheme.
• DOLE Notice Compliance: Petitioners contended that they complied with the requirement to notify the DOLE, and that in any event, respondent's dismissal due to redundancy could not be rendered illegal even assuming arguendo that they failed to strictly comply with such requirement.
• Misapplication of Precedent: Petitioners asserted that the CA misapplied and/or misconstrued the Supreme Court's rulings in San Miguel vs. Del Rosario and Panlilio vs. NLRC regarding the evidence that may prove redundancy.

• Sham Redundancy: Respondent insisted that petitioners' redundancy scheme was a sham, contrived with the sole aim of discharging him from employment in retaliation for his whistleblowing against Kong's irregularities.
• Non-compliance with Notice: Respondent argued that petitioners did not comply with the DOLE notice requirement under the Labor Code.
• Employer-Employee Relationship: Respondent maintained that he remained an employee of APCC and was only an APCP BV employee on paper; upon his termination, he was immediately replaced by another employee holding the same position albeit with a different title.
• Fabricated Evidence: Respondent contended that the documentary evidence adduced by petitioners to prove their redundancy scheme was fabricated.
• NLRC Grave Abuse: Respondent argued that the NLRC committed grave abuse of discretion in reversing the Labor Arbiter, and that the CA was correct in granting his Petition for Certiorari.

• Certiorari Jurisdiction: Whether the CA properly exercised its certiorari jurisdiction over the NLRC's decision absent a finding of grave abuse of discretion amounting to lack or excess of jurisdiction.
• Factual Findings: Whether the CA erred in revisiting and reversing the NLRC's factual findings solely on the ground of divergence between the Labor Arbiter and the NLRC.
• Validity of Redundancy: Whether respondent's dismissal due to redundancy was valid and supported by substantial evidence.
• Employer Liability: Whether all petitioners, including the individual officers and related corporate entities, could be held jointly and severally liable as respondent's employers.

• Certiorari Jurisdiction: Yes. The CA properly took cognizance of the petition, the NLRC having committed grave abuse of discretion so patent and gross as to amount to an evasion of its positive duty to administer justice, rendering its decision void.
• Factual Findings: No error. The CA was correct to revisit the NLRC's findings, as the NLRC capriciously and whimsically disregarded evidence material and decisive of the controversy.
• Validity of Redundancy: No. The redundancy scheme was a sham, null and void for being contrary to law and public policy, as it was in furtherance of petitioners' illegal scheme of operating an unregistered, unregulated, and untaxed foreign enterprise in the Philippines.
• Employer Liability: Yes. All petitioners were jointly and severally liable as respondent's employers under quasi-contract and unjust enrichment principles, having all benefited from his services and knowingly participated in the fraudulent arrangement.

• Certiorari Jurisdiction: The NLRC committed an error so patent and gross as to amount to an evasion of its positive duty to administer justice in favor of respondent. Failing to properly appreciate the copious evidence on record and apply the law, the NLRC arrived at a fundamentally unjust, unreasonable, and absurd pronouncement that was consequently null and void. A void judgment has no legal and binding effect, does not divest rights, and is susceptible to collateral attack at any time. The CA, in its equity jurisdiction, was clothed with ample authority to review matters, even those not assigned as errors, if their consideration was necessary to arrive at a just decision. The CA found grave abuse of discretion in the NLRC's capricious and whimsical disregard of evidence material to the controversy, which justified the exercise of certiorari jurisdiction.

• Factual Findings: The CA did not err in revisiting the NLRC's factual findings. The extent of judicial review by certiorari of NLRC decisions, as exercised by the CA, permits inquiry into grave abuse of discretion amounting to lack or excess of jurisdiction. Where the NLRC acted capriciously and whimsically in total disregard of evidence material or decisive of the controversy, the extraordinary writ of certiorari lies. The CA properly determined that the NLRC's reversal of the Labor Arbiter was unsupported by substantial evidence and constituted grave abuse of discretion.

• Validity of Redundancy: APCC conducted business in the Philippines as an unregistered, unregulated, and untaxed enterprise, using APCP BV as respondent's cover and requiring him to use his personal bank account for operations. This management and manner of conducting business was illegal. The redundancy scheme was declared a sham and null and void for being contrary to law and public policy, as it was in furtherance of an illegal scheme perpetrated by APCC with the aid of its co-petitioners. The maxim quae ab initio non valent, ex post facto convalescere non possunt applied: things invalid from the beginning are not made valid by a subsequent act. Even setting aside the illegal business arrangement, the redundancy was ineffective because it was implemented by Plumer and Kong (employees of APC Japan and APCS) and Hendy and del Ponso (employees of APCP BV)—none of whom had authority to terminate respondent, who was APCC's true employer. Petitioners failed to present adequate proof of redundancy, such as a new staffing pattern, feasibility studies, job descriptions, and management approval, as required by Panlilio vs. NLRC. The hiring of two new employees to perform basically the same functions belied the claim of redundancy.

• Employer Liability: All petitioners benefited from respondent's services and knowingly aided and abetted each other in the commission of wrong. APCC grew its business and concealed its sales operations through misrepresentations; APCP BV enjoyed goodwill for aiding the cover-up and duping respondent, government, and the public; APCS utilized respondent as its workhorse while he drew salaries from APCP BV. Under Article 2142 of the Civil Code, quasi-contract arises from certain lawful, voluntary, and unilateral acts to prevent unjust enrichment. The principle of unjust enrichment requires two conditions: (1) a person is benefited without valid basis or justification, and (2) such benefit is derived at the expense of another. All petitioners were guilty of violating the Labor Code through concerted acts of fraud and misrepresentation, deliberately disregarding their fundamental obligation to afford protection to labor. The award of backwages was not private compensation but was in furtherance of the public objectives of the Labor Code, commanding the employer to make public reparation for its violation. Reinstatement was no longer feasible due to strained relations and potential security concerns arising from the Court's directive to furnish the BIR a copy for appropriate action, which might require respondent's cooperation as a potential witness.

• Four-fold test of employment relationship — The existence of an employer-employee relationship is determined by four elements: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. The Court applied this test to find that all petitioners were for all practical purposes respondent's employers: he was selected and engaged by APCC, paid by APCP BV, and supervised by APCS and APC Japan. This bizarre labor relation was made possible only by petitioners' common objective of enabling APCC to skirt Philippine law.

• Void judgments — A void judgment or order has no legal and binding effect; it does not divest rights and no rights can be obtained under it; all proceedings founded upon a void judgment are equally worthless. Void judgments are susceptible to collateral attack and can never become final. The Court applied this doctrine to the NLRC's decision, which it found to be a fundamentally unjust, unreasonable, and absurd pronouncement resulting from the NLRC's failure to properly appreciate facts and evidence, rendering it null and void.

• Unjust enrichment and quasi-contract (Article 2142, Civil Code) — Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. Unjust enrichment requires: (1) that a person is benefited without valid basis or justification, and (2) that such benefit is derived at the expense of another. The Court applied this principle to hold all petitioners jointly and severally liable, as each benefited from respondent's services and participated in the fraudulent scheme—APCC through concealed sales operations, APCP BV through goodwill from the cover-up, and APCS through respondent's work as its workhorse.

• Backwages as public reparation — The award of backwages is not private compensation or damages but is in furtherance and effectuation of the public objectives of the Labor Code. Even though the practical effect is enrichment of the individual, the award of backwages is in the nature of a command upon the employer to make public reparation for violation of the Labor Code. The Court relied on this doctrine to justify the backwages award against all petitioners for their concerted violation of labor protection policy.

• Requisites of valid redundancy — Redundancy exists when the service capability of the workforce is in excess of what is reasonably needed to meet the demands of the enterprise. The requisites include: (1) good faith of the employer in abolishing the redundant position; and (2) fair and reasonable criteria in ascertaining what positions are to be declared redundant. Evidence that may substantiate redundancy includes the new staffing pattern, feasibility studies/proposals on the viability of newly created positions, job descriptions, and approval by management of the restructuring. The Court found that petitioners failed to present adequate proof under these standards, and that the redundancy scheme was in fact a sham.

• "This Management and manner of conducting business by petitioners is illegal. Being illegal, this should have been early on remedied by petitioners, including Plumer, Kong, and Hendy, who are presumed to know, by the very nature of their positions and business, how legitimate business is supposed to be conducted in this country, that is, by registering the business to allow regulation and taxation by the authorities." — This passage establishes the foundational finding that petitioners' business arrangement was illegal, which underpins the Court's entire analysis declaring the redundancy scheme void.

• "It is null and void for being contrary to law and public policy as it is in furtherance of an illegal scheme perpetrated by APCC with the aid of its co-petitionions." — This is the operative declaration that the redundancy scheme was null and void, constituting the ratio decidendi on the validity of redundancy issue.

• "For all purposes beneficial to respondent, all the petitioners should be considered as his employers since they all benefited from his industry and used him in their elaborate scheme and to further their aim - evading the regulatory processes of this country." — This passage articulates the basis for holding all petitioners jointly and severally liable, applying quasi-contract and unjust enrichment principles to the unique multi-entity labor arrangement.

• "Quae ab initio non valent, ex post facto convalescere non possunt. Things that are invalid from the beginning are not made valid by a subsequent act." — The Court invoked this Latin maxim to reinforce that the redundancy scheme, being integral to an illegal arrangement from its inception, could not be validated by subsequent acts or formalities.

• David vs. Macasio, 738 Phil. 293 (2014) — Cited for the four-fold test of employment relationship (selection and engagement, payment of wages, power of dismissal, power of control), which the Court applied to determine that all petitioners were for all practical purposes respondent's employers.

• Callanta vs. Carnation Philippines, Inc., 229 Phil. 279 (1986) — Cited for the doctrine that backwages is not private compensation but is in furtherance of the public objectives of the Labor Code, commanding the employer to make public reparation for violation of labor law.

• Locsin II vs. Mekeni Food Corporation, 722 Phil. 886 (2013), citing Flores vs. Spouses Lindo, Jr., 664 Phil. 210 (2011) — Cited for the definition and elements of unjust enrichment: (1) a person is benefited without valid basis or justification, and (2) such benefit is derived at the expense of another.

• Panlilio vs. NLRC — Cited by the CA for the standard of evidence required to substantiate redundancy (new staffing pattern, feasibility studies/proposals, job descriptions, management approval), which the Court found petitioners failed to meet.

• Almodiel vs. NLRC — Cited by the NLRC for the proposition that an employer has a wider latitude of discretion in terminating managerial personnel compared to rank-and-file employees; the Supreme Court implicitly rejected this as insufficient to validate the sham redundancy.

• Article 283, Labor Code — Authorizes termination due to redundancy as an authorized cause, requiring written notice to the worker and the DOLE at least one month before the intended date, and separation pay equivalent to at least one month pay or one month pay for every year of service, whichever is higher. The Court found that petitioners failed to comply with the DOLE notice requirement, as confirmed by the DOLE Certification showing no record of any filed notice.

• Article 279, Labor Code — Provides that an employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and other privileges, and full backwages inclusive of allowances and other benefits from the time compensation was withheld up to the time of actual reinstatement. The Court applied this provision but deleted the reinstatement order due to strained relations, substituting separation pay.

• Article 282, Labor Code — Enumerates just causes for termination. Referenced by the Labor Arbiter in stating the two requisites for valid dismissal: (a) the dismissal must be for any of the causes enumerated in Article 282, and (b) the employee must be accorded due process.

• Article 2142, Civil Code — Provides that certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. The Court applied this provision to hold all petitioners jointly and severally liable for respondent's money claims, damages, and attorney's fees, as each benefited from his services and participated in the fraudulent scheme.

Sereno, C.J. (Chairperson), Leonardo-De Castro, J., Jardeleza, J., and Tijam, J.