Cosare vs. Broadcom Asia, Inc. and Dante Arevalo

The Labor Arbiter, not the Regional Trial Court, has original jurisdiction over an illegal dismissal complaint filed by a corporate officer who is not a "corporate officer" as defined by the Corporation Code and the corporation's by-laws. A position created by a mere enabling clause in the by-laws, without a board resolution and without amendment of the by-laws, does not make the holder a corporate officer for purposes of determining jurisdiction over intra-corporate controversies.

The petitioner, Raul C. Cosare, was employed by respondent Dante Arevalo in April 1993 as a salesman of broadcast equipment. In December 2000, Arevalo incorporated Broadcom Asia, Inc. to continue the business, and Cosare was named an incorporator with 100 shares of stock. The dispute arose within the context of the employer-employee relationship, with the respondents later arguing that the case involved an intra-corporate controversy under Presidential Decree No. 902-A, as amended, which would place jurisdiction with the RTC rather than the Labor Arbiter.

Raul C. Cosare was employed in April 1993 as a salesman by Dante Arevalo, who was then engaged in selling broadcast equipment to television networks and production houses. In December 2000, Arevalo incorporated Broadcom Asia, Inc. to continue the business, and Cosare was named an incorporator with 100 shares of stock at ₱1.00 par value per share. In October 2001, Cosare was promoted to Assistant Vice President for Sales and Head of Technical Coordination, with a monthly basic net salary of ₱18,000.00 and average commissions of ₱37,000.00.

In 2003, Alex F. Abiog was appointed Vice President for Sales and became Cosare's immediate superior. On March 23, 2009, Cosare sent a confidential memo to Arevalo reporting anomalies allegedly committed by Abiog, including failure to report to work on time, advising clients to purchase from competitors, sharing in "under the-table dealings," and expressing complaints about Broadcom's uncompetitive salaries. Cosare clarified he was not interested in Abiog's position but only wanted Arevalo to know of the irregularities.

Arevalo failed to act on the accusations. Cosare claimed he was called to a meeting on March 25, 2009, where he was asked to resign in exchange for ₱300,000.00 in "financial assistance." Cosare refused, as signified in a letter dated March 26, 2009. On March 30, 2009, Cosare received a memo signed by Arevalo charging him with serious misconduct and willful breach of trust, citing four grounds: (a) directing a customer to purchase a camera from another supplier; (b) abandoning a company vehicle; (c) failing to submit regular sales reports; and (d) failing to record any sales for the past twelve months. Cosare was given forty-eight hours to explain and was suspended from accessing company files and using company assets.

Cosare was precluded from reporting for work on March 31, 2009, and was instructed to wait at the office's receiving section. He was prevented from retrieving his personal belongings. On April 1, 2009, he was totally barred from entering the company premises and told to wait outside the office building. When no instructions were given by 8:00 p.m., he sought assistance from barangay officials and had the incident reported in the barangay blotter. On April 2, 2009, Cosare attempted to furnish the company with a memo denying the accusations, but the respondents refused to receive it on the ground of late filing. The following day, Cosare filed the labor complaint.

The respondents refuted the complaint, arguing that Cosare was neither illegally suspended nor dismissed, and that he committed acts inimical to Broadcom's interests, including failure to sell equipment since 2007, attempting to sell a camera sourced from a competitor, and making an unauthorized request for an invitation for a friend to attend a conference. They also contended that Cosare abandoned his job by failing to report for work beginning April 1, 2009, prompting them to issue a memorandum on April 14, 2009 accusing him of absence without leave.

• Jurisdiction of the Labor Arbiter: Petitioner argued that the Labor Arbiter, not the RTC, had jurisdiction over his complaint for illegal dismissal, as the dispute arose from employer-employee relations and not from an intra-corporate controversy.
• Constructive Dismissal: Petitioner maintained that he was constructively dismissed, citing the charges hurled against him, the suspension imposed via the March 30, 2009 memo, the demand for his resignation, the lockout from his files and records, and the refusal to allow him entry to the premises and retrieval of his personal belongings.

• Intra-Corporate Controversy: Respondents argued that the case was an intra-corporate controversy within the exclusive jurisdiction of the RTC pursuant to PD 902-A, as the complaint was filed by a stockholder who was also a corporate officer.
• No Dismissal: Respondents contended that Cosare was neither illegally suspended nor dismissed, and that he committed acts inimical to Broadcom's interests, including failure to sell equipment, attempting to sell a camera sourced from a competitor, and making an unauthorized request in Broadcom's name.
• Abandonment: Respondents argued that Cosare abandoned his job by continually failing to report for work beginning April 1, 2009.
• No Solidary Liability: Respondents argued that Arevalo should not be held solidarily liable for the judgment award.

• Jurisdiction over the Controversy: Whether the case instituted by Cosare was an intra-corporate dispute within the original jurisdiction of the RTC, and not of the Labor Arbiter.
• Constructive Dismissal: Whether Cosare was constructively and illegally dismissed from employment by the respondents.

• Jurisdiction over the Controversy: No. The Labor Arbiter had original jurisdiction over the complaint because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a "corporate officer" as defined by law, and the mere fact that he was a stockholder did not make the action an intra-corporate controversy.
• Constructive Dismissal: Yes. Cosare was constructively dismissed, as the respondents' acts—demanding resignation, issuing a show-cause memo with an unreasonably short period, barring him from the premises, and preventing him from retrieving personal belongings—rendered continued employment impossible, unreasonable, or unlikely.

• Jurisdiction over the Controversy: The Court applied the distinction between a "regular employee" and a "corporate officer" for purposes of determining jurisdiction. Citing Real vs. Sangu Philippines, Inc. and Garcia vs. Eastern Telecommunications Philippines, Inc., the Court held that "corporate officers" in the context of PD 902-A are those officers given that character by the Corporation Code or by the corporation's by-laws. Two circumstances must concur for an individual to be considered a corporate officer: (1) the creation of the position is under the corporation's charter or by-laws; and (2) the election of the officer is by the directors or stockholders. Applying this to the present case, the only officers specifically listed in Broadcom's by-laws were the President, Vice-President, Treasurer, and Secretary. Although a blanket authority allowed the Board to appoint such other officers as it deemed necessary, the respondents failed to establish that the position of AVP for Sales was created by an act of the board and that Cosare was specifically elected or appointed by the directors. No board resolutions formed part of the case records. Citing Marc II Marketing, Inc. vs. Joson, the Court held that an enabling clause in the by-laws empowering the board to create additional officers cannot make such position a corporate office without first amending the by-laws. The CA's reliance on the General Information Sheets was misplaced, as those documents could not govern or establish the nature of the office held by Cosare. The Court also applied the "nature of the controversy test" from Reyes vs. Hon. RTC, Br. 142, holding that the dispute related to Cosare's rights and obligations as a regular officer, not as a stockholder, and thus was not intra-corporate.

• Constructive Dismissal: The Court defined constructive dismissal as occurring "when there is cessation of work because continued employment is rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employee leaving the latter with no other option but to quit." Citing Dimagan vs. Dacworks United, Incorporated, the test is "whether a reasonable person in the employee's position would have felt compelled to give up his position under the circumstances." The Court found that the respondents already rejected Cosare's continued involvement with the company, as evidenced by their refusal to accept his explanation, the unreasonably short 48-hour period to respond, and the demand for resignation before any investigation. The Court also rejected the abandonment defense, citing the inconsistency between the charge of abandonment and the suspension imposed on Cosare. The elements of abandonment—failure to report for work without valid reason and clear intention to sever the employer-employee relationship—were not present, as Cosare's failure to report was neither voluntary nor indicative of an intention to sever his employment. The Court affirmed the NLRC's monetary awards, including exemplary damages, and the solidary liability of Arevalo.

• Corporate Officer Doctrine — For purposes of identifying an intra-corporate controversy under PD 902-A, "corporate officers" are those officers given that character by the Corporation Code or by the corporation's by-laws. Two circumstances must concur: (1) the creation of the position is under the corporation's charter or by-laws; and (2) the election of the officer is by the directors or stockholders. The Court applied this doctrine to hold that Cosare, as AVP for Sales, was not a corporate officer because his position was not created by the by-laws nor was he elected by the board.

• Enabling Clause Limitation — An enabling clause in a corporation's by-laws empowering its board of directors to create additional officers, even with the subsequent passage of a board resolution to that effect, cannot make such position a corporate office. The board of directors has no power to create other corporate offices without first amending the corporate by-laws to include the newly created office. The Court applied this to reject the respondents' argument that the by-laws' blanket authority made Cosare a corporate officer.

• Nature of the Controversy Test — Under this test, the incidents of the intra-corporate relationship must be considered to ascertain whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship but must also pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal rules of the corporation. If the relationship and its incidents are merely incidental to the controversy, or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists. The Court applied this test to hold that the dispute related to Cosare's rights as a regular officer, not as a stockholder.

• Constructive Dismissal Doctrine — Constructive dismissal occurs when there is cessation of work because continued employment is rendered impossible, unreasonable, or unlikely, as when there is a demotion in rank or diminution in pay, or when clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employee, leaving the latter with no other option but to quit. The test is whether a reasonable person in the employee's position would have felt compelled to give up his position under the circumstances. The Court applied this to find that the respondents' acts constituted constructive dismissal.

• Abandonment Doctrine — Abandonment is the deliberate and unjustified refusal of an employee to resume his employment. Two elements must concur: (1) the employee must have failed to report for work or must have been absent without valid or justifiable reason; and (2) there must have been a clear intention on the part of the employee to sever the employer-employee relationship manifested by some overt act. The Court applied this to reject the respondents' defense, finding that Cosare's failure to report was neither voluntary nor indicative of an intention to sever his employment.

• "‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws. There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the corporation’s by-laws." — This passage defines the controlling doctrine for determining who is a corporate officer for purposes of jurisdiction over intra-corporate controversies.

• "It has been held that an 'office' is created by the charter of the corporation and the officer is elected by the directors and stockholders. On the other hand, an 'employee' usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee." — This passage distinguishes between a corporate officer and a regular employee, which is central to the jurisdiction analysis.

• "The test of constructive dismissal is whether a reasonable person in the employee’s position would have felt compelled to give up his position under the circumstances. It is an act amounting to dismissal but is made to appear as if it were not. Constructive dismissal is therefore a dismissal in disguise." — This passage states the canonical test for constructive dismissal applied by the Court.

• "To allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering the board of directors to do so can result in the circumvention of that constitutionally well-protected right [of every employee to security of tenure]." — This passage explains the policy rationale for requiring by-law amendment, not merely an enabling clause, to create a corporate office.

• Matling Industrial and Commercial Corporation vs. Coros, G.R. No. 157802, October 13, 2010, 633 SCRA 12 — Controlling precedent distinguishing between a "regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute or complaint for illegal dismissal and determining which body has jurisdiction over it.
• Real vs. Sangu Philippines, Inc., G.R. No. 168757, January 19, 2011, 640 SCRA 67 — Followed for the definition of corporate officers in the context of PD 902-A and for the principle that not all conflicts between stockholders and the corporation are classified as intra-corporate.
• Garcia vs. Eastern Telecommunications Philippines, Inc., G.R. No. 173115, April 16, 2009, 585 SCRA 450 — Cited within Real for the definition of corporate officers.
• Tabang vs. NLRC, 334 Phil. 424 (1997) — Followed for the distinction between an "office" created by the charter and an "employee" employed by the managing officer.
• Marc II Marketing, Inc. vs. Joson, G.R. No. 171993, December 12, 2011, 662 SCRA 35 — Controlling precedent holding that an enabling clause in the by-laws cannot make a position a corporate office without amending the by-laws.
• Reyes vs. Hon. RTC, Br. 142, 583 Phil. 591 (2008) — Followed for the "nature of the controversy test" in determining the existence of an intra-corporate dispute.
• Dimagan vs. Dacworks United, Incorporated, G.R. No. 191053, November 28, 2011, 661 SCRA 438 — Followed for the test of constructive dismissal and the elements of abandonment.
• King of Kings Transport, Inc. vs. Mamac, 553 Phil. 108 (2007) — Followed for the standards to be observed by employers in complying with the service of notices prior to termination, including the requirement of a reasonable period of at least five calendar days.
• Robinsons Galleria/Robinsons Supermarket Corporation vs. Ranchez, G.R. No. 177937, January 19, 2011, 640 SCRA 135 — Followed for the rule that an illegally or constructively dismissed employee is entitled to reinstatement or separation pay and backwages.

• Article 217, Labor Code — Provides that termination disputes and claims for damages arising from employer-employee relations fall under the jurisdiction of the Labor Arbiter. The Court applied this to hold that the LA had jurisdiction over Cosare's complaint.
• Presidential Decree No. 902-A, as amended — Provides for the exclusive jurisdiction of the RTC over intra-corporate controversies. The Court interpreted this provision to exclude the present case, as Cosare was not a corporate officer.
• Section 25, Corporation Code — Identifies the three specific officers a corporation must have (president, secretary, and treasurer) and allows for such other officers as may be provided for by the by-laws. The Court applied this to determine that Cosare's position was not a corporate office.
• Section 1, Article IV, Broadcom's By-Laws — Lists the officers of Broadcom as the President, Vice-President, Treasurer, and Secretary, with a blanket authority for the Board to appoint such other officers as it may deem necessary. The Court interpreted this provision to exclude the AVP for Sales position from the list of corporate offices.

Chief Justice Maria Lourdes P. A. Sereno, Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Martin S. Villarama, Jr.