Complex Electronics Employees Association vs. National Labor Relations Commission

The closure or cessation of business operations is a management prerogative that the State will not interfere with so long as it is exercised in good faith — even where the employer is not suffering from serious business losses — but the employer must still serve the one-month written notice on the workers and the DOLE and pay separation pay; failure to give notice does not make the termination illegal, it merely renders the employer liable for indemnity.

Complex Electronics Corporation was engaged in the manufacture of electronic products as a subcontractor, with foreign-based customers sending their own materials and consigning their equipment for product lines requiring workers with specific skills. Its rank-and-file workers were organized into the Complex Electronics Employees Association. Ionics Circuit, Inc. was a separate corporation engaged in the same semi-conductor business, in existence since July 5, 1984, and sharing with Complex the same president, Lawrence Qua, who was impleaded by the Union on the theory that the two corporations were one and the same.

Complex Electronics Corporation manufactured electronic products as a subcontractor, taking in job orders from customers who sent their own materials and consigned their equipment, each customer's product line requiring workers with specific skills — hence the AMS Line for Adaptive Micro System, Inc., the Heril Line for Heril Co., Ltd., and the Lite-On Line for Lite-On Philippines Electronics Co. Its rank-and-file workers were organized into the Complex Electronics Employees Association.

On March 4, 1992, Complex received a facsimile message from Lite-On Philippines Electronics Co. informing it that Taiwan required a reduction of its assembly cost, which was higher by 50% and no longer competitive with mainland China, and instructing that Complex's price be patterned after other sources at 10% lower, with a request for revised rates soon. Consequently, on March 9, 1992, a meeting was held between Complex and the personnel of the Lite-On Production Line, where Complex informed its Lite-On personnel that the requested 10% reduction was not feasible since it was already incurring losses at the present prices of its products. Complex regretfully informed the employees that it was left with no alternative but to close down the operations of the Lite-On Line, and promised that it would follow the law by giving the people to be retrenched the necessary one month notice, that retrenchment would not take place until after one month from March 9, 1992, that it would try to prolong the work for as many people as possible by looking for job slots for them in another line if workload allowed and their skills were compatible, and that it would give the employees to be retrenched a retrenchment pay as provided by law, i.e., half a month for every year of service under Article 283 of the Labor Code. The Union pushed for a retrenchment pay equivalent to one month salary for every year of service, which Complex refused.

On March 13, 1992, Complex filed a notice of closure of the Lite-On Line with the Department of Labor and Employment and the retrenchment of the ninety-seven affected employees. On March 25, 1993, the Union filed a notice of strike with the National Conciliation and Mediation Board, and two days thereafter, on March 27, 1993, the Union conducted a strike vote which resulted in a "yes" vote.

According to Complex, from the time the Union filed its notice of strike there was a significant decline in the quantity and quality of the products in all of the production lines; delivery schedules were not met, prompting the customers to lodge complaints against them; and, fearful that the machinery, equipment and materials would be rendered inoperative and unproductive due to the impending strike, the customers ordered their pull-out and transfer to Ionics, compelling Complex to cease operations. In the evening of April 6, 1992, the machinery, equipment and materials being used for production at Complex were pulled out from the company premises and transferred to the premises of Ionics Circuit, Inc. at Cabuyao, Laguna, and the following day a total closure of company operation was effected at Complex.

A complaint was thereafter filed with the Labor Arbitration Branch of the NLRC for unfair labor practice, illegal closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages, 13th month pay, damages and attorney's fees. The Union alleged that the pull-out of the machinery, equipment and materials, which resulted in the sudden closure of the company, violated Sections 3 and 8, Rule XIII, Book V of the Labor Code and the existing CBA, and impleaded Ionics because the officers and management personnel of Complex were also holding office at Ionics with Lawrence Qua as president of both companies. Ionics contended that it was an entity separate and distinct from Complex and had been in existence since July 5, 1984, or eight years before the labor dispute arose; that like Complex it was engaged in the semi-conductor business where machinery, equipment and materials were consigned to it by customers; and that while it admitted Qua was president of both, it denied he was its owner since he had no recorded subscription of P1,200,000.00 in Ionics as claimed by the Union, adding that the hiring of some displaced workers of Complex was an exercise of management prerogative and that the transfer of the machinery, equipment and materials was the decision of the owners who were common customers of both companies.

The auditing and accounting firm Sycip, Gorres and Velayo issued financial statements for the years 1990, 1991 and 1992 readily showing that Complex was indeed continuously experiencing deficit and losses. On November 10, 1997, the Union presented additional documentary evidence consisting of a newspaper clipping in the Manila Bulletin dated August 18, 1997 bearing the picture of Lawrence Qua with an inscription on the recertification of Ionics' Cabuyao plants to ISO 9002, which the Union claimed showed that Ionics and Complex are one and the same; Ionics answered that the clipping pertained only to its own recertification, made no mention of Complex, and that a mere photo is insufficient to conclude that the two are one and the same.

• Piercing the Corporate Veil / Runaway Shop: The Union anchored its position on the fact that Lawrence Qua was president of both Complex and Ionics and that both companies had the same set of Board of Directors, and claimed that business had not ceased at Complex but was merely transferred to Ionics, a runaway shop; to prove this, it asserted that out of the 80,000 shares comprising the increased capital stock of Ionics, it was Complex that owned the majority of said shares with P1,200,000.00 as capital subscription and P448,000.00 as paid-up investment, compared to P800,000.00 subscription and P324,560.00 paid-up owing to the other stockholders combined, giving a clear ground to pierce the veil of corporate fiction.
• Illegal Lockout / Illegal Dismissal: The Union posited that there was an illegal lockout/illegal dismissal considering that as of March 11, 1992 the company had gross sales of P61,967,559 from a capitalization of P1,500,000.00, and even ranked number thirty among the top fifty corporations in Muntinlupa, so Complex could not claim that it was losing in its business in a way that necessitated its closure.
• Personal Liability of Lawrence Qua: The Union maintained that Qua should be made personally liable to the Union since he was the principal player in the closure of the company, not to mention the clandestine and surreptitious manner in which such closure was carried out, without regard to the employees' right to due process.
• Identity of Complex and Ionics: The Union presented a Manila Bulletin clipping dated August 18, 1997 bearing the picture of Lawrence Qua at the ISO 9002 recertification of Ionics' Cabuyao plants and claimed that the said clipping showed that both corporations, Ionics and Complex, are one and the same.

• Valid Closure Due to Customer Pull-Out: Complex averred that since the time the Union filed its notice of strike there was a significant decline in the quantity and quality of the products in all of the production lines, that delivery schedules were not met prompting the customers to lodge complaints, and that, fearful the machinery, equipment and materials would be rendered inoperative and unproductive due to the impending strike, the customers ordered their pull-out and transfer to Ionics, so that Complex was compelled to cease operations.
• Separate Corporate Personality: Ionics contended that it was an entity separate and distinct from Complex and had been in existence since July 5, 1984, or eight years before the labor dispute arose at Complex; that while it admitted Lawrence Qua, the President of Complex, was also its President, it denied having Qua as owner since he had no recorded subscription of P1,200,000.00 in Ionics as claimed by the Union; that the hiring of some displaced workers of Complex was an exercise of management prerogative; and that the transfer of the machinery, equipment and materials from Complex was the decision of the owners who were common customers of Complex and Ionics.
• Insufficiency of the Newspaper Clipping: Ionics explained that the photo which appeared in the Manila Bulletin issue of August 18, 1997 pertained only to its recertification to ISO 9002, that there was no mention about Complex Electronics Corporation, and that a mere photo is insufficient to conclude that Ionics and Complex are one and the same.
• No Basis for One Month Pay in Lieu of Notice: Complex claimed that the NLRC erred in ordering it to pay one month pay as indemnity for failure to give notice at least thirty days before the closure since it was quite clear that the employees were notified of the impending closure of the Lite-On Line as early as March 9, 1992, and the abrupt cessation of operations was brought about by the sudden pull-out of the customers which rendered it impossible for Complex to observe the required thirty days' notice.
• No Liability for Separation Pay: Complex maintained that it was not liable for the payment of separation pay since Article 283 of the Labor Code awards separation pay only in cases of closure not due to serious business reversals, and in this case the closure of Complex was brought about by the losses being suffered by the corporation.

• Piercing the Corporate Veil / Runaway Shop: Whether Ionics is a runaway shop and whether the separate corporate personalities of Complex and Ionics should be disregarded so as to hold Ionics solidarily liable with Complex.
• Illegal Lockout / Illegal Dismissal: Whether the closure of Complex's operations constituted an illegal lockout or illegal dismissal of its employees.
• Personal Liability of a Corporate Officer: Whether Lawrence Qua may be held personally liable for the liabilities arising from the closure of Complex.
• Damages: Whether the Union and the affected employees are entitled to an award of moral and exemplary damages.
• Indemnity for Failure to Give Notice: Whether Complex is liable for one month pay as indemnity for its failure to serve the written notice required by Article 283 of the Labor Code at least one month before the intended closure.
• Separation Pay: Whether Complex is liable for separation pay notwithstanding the financial losses it claims to have suffered.

• Piercing the Corporate Veil / Runaway Shop: No. Ionics was not a runaway shop, having existed as an independent company since July 5, 1984, and the Union failed to show that the closure was motivated by anti-union animus; mere common ownership or a shared president is not a sufficient ground to pierce the corporate veil.
• Illegal Lockout / Illegal Dismissal: No. The complete cessation of business operations at Complex was brought about by the customers' pull-out of their equipment, machinery and materials, not by the labor dispute, so there was neither illegal lockout nor illegal dismissal.
• Personal Liability of a Corporate Officer: No. In the absence of malice or bad faith, a stockholder or officer of a corporation cannot be made personally liable for corporate liabilities.
• Damages: No. With the closure not shown to have been intended to interfere with the employees' right to self-organization, there is no basis for the award of moral and exemplary damages.
• Indemnity for Failure to Give Notice: Yes. Complex failed to serve the written notice at least one month before the intended closure as Article 283 requires, and the NLRC's award of one month salary as indemnity is affirmed.
• Separation Pay: Yes. The closure was not due to serious business losses or financial reverses but to the customers' pull-out, so separation pay at one month pay for every year of service is due.

• Piercing the Corporate Veil / Runaway Shop: The SC defined a "runaway shop" as an industrial plant moved by its owners from one location to another to escape union labor regulations or state laws, a term also used to describe a plant removed to a new location in order to discriminate against employees at the old plant because of their union activities — one wherein the employer moves its business to another location or temporarily closes its business for anti-union purposes, a relocation motivated by anti-union animus rather than for business reasons. Here, Ionics was not set up merely for the purpose of transferring the business of Complex; at the time the labor dispute arose at Complex, Ionics was already existing as an independent company, having been in existence since July 5, 1984, so it cannot be said that the temporary closure in Complex and its subsequent transfer of business to Ionics was for anti-union purposes, and the Union failed to show that the primary reason for the closure was the union activities of the employees. The mere fact that one or more corporations are owned or controlled by the same or single stockholder is not a sufficient ground for disregarding separate corporate personalities; the SC cited Indophil Textile Mill Workers Union vs. Calica, where related businesses, shared personnel and facilities in the same compound did not justify piercing, and Del Rosario vs. NLRC, where substantial identity of incorporators of two corporations does not necessarily imply fraud. As ruled in Santos vs. NLRC, 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. Ionics may be engaged in the same business as Complex, but this fact alone is not enough reason to pierce the veil, since the fiction of corporate entity can only be disregarded in certain cases such as when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime, and the wrongdoing must be clearly and convincingly established. As to the newspaper clipping, the photo itself does not prove that Ionics and Complex are one and the same entity; it merely showed that some plants of Ionics were recertified to ISO 9002 and does not show any relation between Complex and Ionics except that Lawrence Qua was also president of Ionics, which by itself is insufficient.
• Illegal Lockout / Illegal Dismissal: A lockout is the temporary refusal of an employer to furnish work as a result of an industrial or labor dispute, and may be manifested by the employer's act of excluding employees who are union members. In this case there was a complete cessation of business operations at Complex not because of the labor dispute: before the labor dispute, Complex had already informed the employees that it would be closing the Lite-On Line, the employees demanded a separation pay equivalent to one month salary for every year of service which Complex refused, and when Complex filed a notice of closure of its Lite-On Line the employees filed a notice of strike which greatly alarmed the customers of Complex and led to the pull-out of their equipment, machinery and materials. Without the much needed equipment, Complex was unable to continue its business and was left with no other choice except to shut down the entire business; the closure was therefore not motivated by the union activities of the employees but by necessity. The SC quoted with approval the NLRC's finding that the closure, although done abruptly without compliance with the 30-day prior notice requirement, was not intended to circumvent the Labor Code provisions on termination of employment, since the customers, alarmed by the pending labor dispute and the imminent strike shown by the strike vote, directed the pull-out of their equipment to another safe bonded warehouse and Complex, being a mere consignee, was without any recourse but to oblige. The determination to cease operation is a prerogative of management that is usually not interfered with by the State, as no employer can be required to continue operating at a loss simply to maintain the workers in employment, which would be taking of property without due process of law. On the Union's claim that Complex was gaining profit, the financial statements for 1990, 1991 and 1992 issued by Sycip, Gorres and Velayo readily showed that Complex was indeed continuously experiencing deficit and losses; but in any case, whether or not Complex was incurring great losses, it is still one of management's prerogatives to close down its business as long as it is done in good faith, as ruled in Catatista et al. vs. NLRC and Victorias Milling Co., Inc. — Article 283 is clear that an employer may close or cease business operations even if it is not suffering from serious business losses or financial reverses, as long as it pays the employees their termination pay corresponding to their length of service.
• Personal Liability of a Corporate Officer: It is settled that in the absence of malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. While it may be true that the equipment, materials and machinery were pulled out of Complex and transferred to Ionics during the night, the action was sufficiently explained by Lawrence Qua: the pull-out during nighttime is not per se an indicia of bad faith since he had no other recourse, the same being dictated by the prevailing mood of unrest as the laborers were already vandalizing the equipment, bent on picketing the company premises, and threats to lock out the company officers were being made; the acts were done pursuant to the demands of Complex's customers, who were already alarmed by the pending labor dispute and imminent strike, to have their equipment, machinery and materials pulled out, and were thus pursuant to his official functions and not in any way made with evident bad faith. The SC perceived no intention on the part of Lawrence Qua and the other officers of Complex to defraud the employees and the Union; they were compelled to act upon the instructions of their customers, who were the real owners of the equipment, materials and machinery, and the prevailing labor unrest left the officers with no other choice but to pull them out at night to prevent their destruction. There was thus no reason to declare Lawrence Qua personally liable.
• Damages: The SC agreed with the NLRC that there was no basis for the award of damages. The respondents cannot be held guilty of unfair labor practice as found by the Labor Arbiter, since the closure of operation of Complex was not established by strong evidence to have had the purpose of interfering with the employees' right to self-organization and collective bargaining; the closure was triggered by the customers' pull-out of their equipment, machinery and materials after they were alarmed by the pending labor dispute and the imminent strike, and Complex had no recourse but to cease operation to prevent further losses. The Union's filing of the notice of strike, which was not the proper remedy to question the amount of benefits due the complainants who would be retrenched at the closure of the Lite-On Line, gave a wrong signal to the customers of Complex and consequently resulted in the loss of employment of all the workers, the right to strike being a remedy of last resort that must not be used as a show of force against the employer. The award of moral damages was therefore deleted for lack of merit.
• Indemnity for Failure to Give Notice: Article 283 of the Labor Code provides that the employer may terminate employment due to, among others, the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of the Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one month before the intended date thereof. The purpose of the notice requirement is to enable the proper authorities to determine after hearing whether such closure is being done in good faith, i.e., for bona fide business reasons, or whether, to the contrary, the closure is being resorted to as a means of evading compliance with the just obligations of the employer to the employees affected; while the law acknowledges the management prerogative of closing the business, it does not allow the business establishment to disregard the requirements of the law. Quoting Magnolia Dairy Products vs. NLRC, the SC held that failure to serve the written notice to the employee and to the DOLE does not ipso facto make the termination from service illegal so as to entitle the employee to reinstatement and payment of backwages; if at all, the termination is merely defective because it was not tainted with bad faith or arbitrariness and was due to a valid cause, and the employer is instead sanctioned with indemnity. The SC found no grave abuse of discretion on the part of the NLRC in ordering Complex to pay one month salary by way of indemnity, bearing in mind that what is at stake is the means of livelihood of the workers, who are at least entitled to be formally informed of the management decisions regarding their employment.
• Separation Pay: Article 283 further provides that in case of retrenchment to prevent losses and in case of cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, with a fraction of at least six months considered as one whole year. It is settled that in case of closures or cessation of operation of business establishments not due to serious business losses or financial reverses, the employees are always given separation benefits. In the instant case, notwithstanding the financial losses suffered by Complex, such losses were not the main reason for its closure; Complex admitted in its petition that the main reason for the cessation of operations was the pull-out of the materials, equipment and machinery from the premises of the corporation as dictated by its customers, and it was actually still capable of continuing the business but opted to close down to prevent further losses. Under the facts and circumstances of the case, the SC found no grave abuse of discretion on the part of the NLRC in awarding the employees one month pay for every year of service as termination pay.

• Runaway Shop — An industrial plant moved by its owners from one location to another to escape union labor regulations or state laws; the term is also used to describe a plant removed to a new location in order to discriminate against employees at the old plant because of their union activities, or one wherein the employer moves its business to another location or temporarily closes its business for anti-union purposes. A runaway shop is a relocation motivated by anti-union animus rather than for business reasons. The SC held Ionics was not a runaway shop because it already existed as an independent company since July 5, 1984, eight years before the labor dispute, and the Union failed to show that the primary reason for the closure was the employees' union activities.
• Piercing the Veil of Corporate Fiction — A corporation has a personality separate and distinct from that of its officers and stockholders, and this fiction of corporate entity can only be disregarded in certain cases such as when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. To disregard the separate juridical personality, the wrongdoing must be clearly and convincingly established. The mere fact that one or more corporations are owned or controlled by the same or single stockholder, that they share a president or a board of directors, that they are engaged in the same or related businesses, or that one owns all or nearly all of the capital stock of the other, is not of itself a sufficient ground for disregarding separate corporate personalities.
• Management Prerogative to Close or Cease Business Operations — The determination to cease operation is a prerogative of management that is usually not interfered with by the State, since no employer can be required to continue operating at a loss simply to maintain the workers in employment; requiring it to do so would be taking of property without due process of law. Under Article 283, an employer may close or cease business operations even if it is not suffering from serious business losses or financial reverses, as long as it pays the employees their termination pay corresponding to their length of service and acts in good faith.
• The One-Month Written Notice and the Indemnity Sanction — Article 283 requires the employer to serve a written notice on the workers and the DOLE at least one month before the intended date of closure. The purpose is to enable the proper authorities to determine after hearing whether the closure is being done in good faith for bona fide business reasons or is being resorted to as a means of evading the employer's just obligations to the employees. Failure to serve the notice does not ipso facto make the termination illegal so as to entitle the employee to reinstatement and backwages; the termination is merely defective where it was not tainted with bad faith or arbitrariness and was due to a valid cause, and the employer is sanctioned with indemnity instead.
• Personal Liability of Corporate Officers — In the absence of malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. Acts done pursuant to official functions, even if carried out at nighttime to prevent destruction of customer-owned property amid labor unrest, do not amount to evident bad faith where they were compelled by the instructions of the customers who owned the equipment.

• "A 'runaway shop' is defined as an industrial plant moved by its owners from one location to another to escape union labor regulations or state laws, but the term is also used to describe a plant removed to a new location in order to discriminate against employees at the old plant because of their union activities." — The canonical definition applied by the SC in rejecting the Union's runaway shop theory against Ionics.
• "The mere fact that one or more corporations are owned or controlled by the same or single stockholder is not a sufficient ground for disregarding separate corporate personalities." — The controlling rule on piercing the corporate veil, applied to reject solidary liability against Ionics despite common ownership and a shared president.
• "The determination to cease operation is a prerogative of management that is usually not interfered with by the State as no employer can be required to continue operating at a loss simply to maintain the workers in employment." — Quoted with approval from the NLRC, this is the core of the ruling that the closure was a valid management prerogative and not an illegal lockout.
• "The failure of petitioner to serve the written notice to private respondent and to the DOLE, however, does not ipso facto make private respondent's termination from service illegal so as to entitle her to reinstatement and payment of backwages. If at all, her termination from service is merely defective because it was not tainted with bad faith or arbitrariness and was due to a valid cause." — Quoted from Magnolia Dairy Products vs. NLRC and made the basis for affirming the award of one month pay as indemnity rather than reinstatement and backwages.

• Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697 [1992] — Controlling precedent, quoted at length; related businesses, shared personnel and facilities in the same compound were held insufficient to justify piercing the corporate veil.
• Del Rosario vs. National Labor Relations Commission, 187 SCRA 777 [1990] — Followed; substantial identity of the incorporators of two corporations does not necessarily imply that fraud was committed to justify piercing the veil of corporate fiction.
• Santos vs. National Labor Relations Commission, 254 SCRA 673 [1996] — Followed; 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.
• Catatista et al. vs. NLRC and Victorias Milling Co., Inc., 247 SCRA 46 [1995] — Controlling precedent, quoted; an employer may close or cease business operations even if not suffering from serious business losses or financial reverses, as long as it pays termination pay corresponding to length of service.
• Magnolia Dairy Products vs. NLRC, 252 SCRA 483 [1996] — Controlling precedent, quoted at length; failure to serve the written notice to the employee and the DOLE does not ipso facto make the termination illegal, but merely defective, warranting indemnity.
• Coca Cola Bottlers (Phils.), Inc. vs. NLRC, 194 SCRA 592 [1991] — Cited for the purpose of the notice requirement: to enable the proper authorities to determine after hearing whether the closure is in good faith or is a means of evading the employer's just obligations.
• AHS/Philippines, Inc. vs. Court of Appeals, 257 SCRA 319 [1996] — Cited for the rule that, absent malice or bad faith, a stockholder or officer of a corporation cannot be made personally liable for corporate liabilities.
• North Davao Mining Corp. vs. NLRC, 254 SCRA 721 [1996] — Cited for the settled rule that in cases of closures or cessation of operation of business establishments not due to serious business losses or financial reverses, the employees are always given separation benefits.

• Article 283, Labor Code of the Philippines — Governs closure of establishment and reduction of personnel. Applied in two respects: (a) its one-month written notice requirement to the workers and the DOLE was not complied with, making the termination merely defective and rendering Complex liable for one month pay as indemnity; and (b) its separation pay scale — one month pay or at least one-half month pay for every year of service, whichever is higher, with a fraction of at least six months counted as one whole year — applied because the cessation of operations was not due to serious business losses or financial reverses, warranting one month pay for every year of service.
• Article 212(p), Labor Code of the Philippines — Defines lockout as the temporary refusal of an employer to furnish work as a result of an industrial or labor dispute. Applied to hold that the complete cessation of Complex's operations, forced by the customers' pull-out rather than by the labor dispute, was not a lockout.
• Section 3, Rule XIII, Book V, Labor Code of the Philippines — Requires a notice of strike or lockout to be filed with the regional branch of the Board at least thirty days before the intended date in cases of bargaining deadlocks, and fifteen days in cases of unfair labor practices. Invoked by the Union as among the provisions violated by the pull-out and sudden closure; the SC found no illegal closure to which it could attach.
• Section 8, Rule XIII, Book V, Labor Code of the Philippines — Governs the declaration of strike and lockout after the lapse of the requisite number of days from the filing of the notice and the holding of the election required in the preceding section. Also invoked by the Union and likewise found unviolated given the valid closure.