Genuino Agro-Industrial Development Corporation vs. Romano

Retrenchment is invalid where the employer fails to prove actual or impending losses by sufficient and convincing evidence, fails to serve written notices on the employees and the DOLE, and fails to pay separation pay; and the corporate veil between affiliated corporations may be pierced when both use their separate personalities in bad faith to evade a judgment obligation, rendering them solidarily liable.

Petitioner Genuino Agro-Industrial Development Corporation and Genuino Ice Company, Inc. are affiliate companies sharing the same address, sets of officers, and representative in this suit. Respondents Armando G. Romano, Jay A. Cabrera, and Moises V. Sarmiento worked as brine men at the ice plant in Turbina, Calamba, Laguna, which appears to have been owned and operated by both companies. Romano was hired through the manpower agency Vicar General Contractor and Management Services, while Cabrera and Sarmiento were hired through L.C. Moreno General Contractor and Management Services, with Vicar eventually becoming the sole agency supplying all workers. The dispute arose from the respondents' termination and the companies' attempts to shield each other from liability.

Respondents Armando G. Romano, Jay A. Cabrera, and Moises V. Sarmiento worked as brine men at the ice plant in Turbina, Calamba, Laguna, operated by Genuino Ice Company, Inc. and its affiliate, petitioner Genuino Agro-Industrial Development Corporation. Romano was hired through the manpower agency Vicar General Contractor and Management Services, while Cabrera and Sarmiento were hired through L.C. Moreno General Contractor and Management Services. Vicar eventually became the sole agency supplying all employees to the ice plant. Romano had worked at the plant since 1988, Sarmiento since 1988, and Cabrera since 1992.

Sometime in September 2004, the workers were given a rotating work schedule under which one worker was not made to report for 15 consecutive days while the six others reported on their regular schedules, such that each worker did not work for 15 days over a period of 90 days. When Romano reported back to work on June 25, 2005 after his 15-day forced leave, he was told that his employment had already been terminated. Sarmiento and Cabrera suffered the same fate and were dismissed on July 10, 2005.

On August 3, 2005, respondents filed a complaint for illegal dismissal with prayer for separation pay against Genuino Ice and Vicar before the DOLE. Genuino Ice responded that respondents had charged the wrong party, claiming they were never its employees but were contractual employees of petitioner, its affiliate company, deployed through Vicar and L.C. Moreno. Genuino Ice explained that due to a continuous decline in demand for ice products, petitioner had shut down its block ice production facilities and reduced its workforce from six to two, and that respondents had been relieved from their posts by the agencies. Respondents then amended their complaint to implead petitioner, adding a prayer for reinstatement and attorney's fees.

The Labor Arbiter, in his December 29, 2006 Decision, found respondents to be regular employees of petitioner, as they performed functions necessary and desirable to the ice plant's operations and had worked continuously for several years. Vicar was found to be a labor-only contractor without substantial capital or equipment. The dismissal was declared illegal because petitioner failed to adduce evidence that the closure of its block ice production facility had basis or that the dismissal was for an authorized cause. The Labor Arbiter ordered reinstatement without loss of seniority rights and awarded backwages of ₱133,395.51 each, with petitioner and Vicar held jointly and severally liable. In compliance with the reinstatement aspect, petitioner issued a Notice of Compliance directing respondents to report to its main office for placement at other branches, but when respondents reported on March 6, 2007, they were made to wait the entire day without any job assignment. Their subsequent inquiries on March 8 and 12, 2007 yielded no results, prompting them to seek a writ of partial execution for payroll reinstatement. The Labor Arbiter granted the writ, which was returned unsatisfied, leading to an alias writ that was also opposed by petitioner.

On appeal, the NLRC affirmed the Labor Arbiter on November 29, 2007, holding that retrenchment could not be justified because petitioner and Vicar disregarded the requirements of Article 298 and failed to submit documentary proof such as audited financial statements. Petitioner's motion for reconsideration was denied on February 26, 2008. The CA, in its May 31, 2012 Decision, found no grave abuse of discretion by the NLRC, holding that retrenchment was not validly proven and that petitioner was liable for illegal dismissal. The CA also found no basis to modify the award of reinstatement and full backwages, as petitioner failed to sufficiently prove that the department had closed or that no equivalent positions existed at its other branch.

• Retrenchment Without Proper Notice: Petitioner argued that respondents did not question its right to lay off workers due to serious business losses, but only questioned the propriety of termination for non-compliance with the notice requirement under Article 298 of the Labor Code. Since respondents admitted the closure was brought about by serious business losses, they were terminated for cause but without due process, entitling them only to nominal damages pursuant to Jaka Food Processing Corp. vs. Pacot.
• Supervening Event Rendering Reinstatement Impossible: Petitioner maintained that the closure of its ice plants constituted a supervening event that rendered reinstatement impossible, as the former positions no longer existed and no equivalent positions were available at its other branch. It argued that the order of reinstatement with full backwages should be modified to payment of separation pay reckoned from the date of initial employment up to December 29, 2006.
• No Solidary Liability of Genuino Ice: Petitioner contended that respondents' motion to declare Genuino Ice solidarily liable had no factual and legal basis because Genuino Ice was not a party in the case. The Labor Arbiter's Decision, which held only petitioner liable, had already become final and immutable as to respondents since they did not appeal it, precluding any alteration at this stage to make Genuino Ice solidarily liable.

• Prior Precedent Resolves the Issues: Respondents countered that petitioner was raising the very same grounds already resolved by this Court in Genuino Ice Company, Inc. vs. Lava, which involved co-employees of respondents against Genuino Ice under exactly the same facts and issues, where the employer was found guilty of illegal dismissal. Consistent with that ruling, the CA's finding of illegal dismissal should be affirmed.
• Piercing the Corporate Veil: Respondents argued that they could not be precluded from asking the Court to pierce the veil of corporate fiction of Genuino Ice to make it solidarily liable with petitioner, given that the two companies' actuations indicated they were one and the same entity. They pointed out that the verification portion of the Memorandum of Appeal was signed by Edgar A. Carriaga, Genuino Ice's authorized representative, and that Genuino Ice posted the appeal bond on petitioner's behalf. When respondents tried to collect from the surety bond by virtue of the writ of partial execution and notice of garnishment, they failed to recover anything because Carriaga opposed the collection, claiming the amount was intended as collateral security for Genuino Ice and not for petitioner.

• Validity of Retrenchment: Whether respondents were illegally dismissed, retrenchment not being duly proven, or whether they were validly retrenched for an authorized cause but without proper notice, entitling them only to nominal damages.
• Relief Due to Respondents: Whether the award of reinstatement and full backwages should be modified to separation pay on the ground that the closure of petitioner's ice plants was a supervening event rendering reinstatement impossible.
• Solidary Liability of Genuino Ice: Whether Genuino Ice Company, Inc. should be held solidarily liable with petitioner for the monetary awards, notwithstanding that it was not the party adjudged liable by the Labor Arbiter.

• Validity of Retrenchment: Yes, respondents were illegally dismissed. Retrenchment was not validly proven because petitioner failed to submit audited financial statements, failed to serve the required written notices on the employees and the DOLE, and failed to pay separation pay — all requisites under Article 298 of the Labor Code.
• Relief Due to Respondents: Modified. Reinstatement was no longer viable after 14 years, making it unlikely that the former positions or their equivalents still existed. In lieu of reinstatement, separation pay equivalent to one month salary for every year of service was awarded, together with full backwages computed from the date of dismissal until the finality of the decision.
• Solidary Liability of Genuino Ice: Yes. The corporate veil between petitioner and Genuino Ice was pierced because both companies used their separate corporate personalities in bad faith to confuse legitimate issues and evade their monetary obligation to respondents, warranting solidary liability.

• Validity of Retrenchment: Retrenchment is a management prerogative to downsize the workforce to avert business losses, but it is valid only when three basic requisites are satisfied: (a) proof that retrenchment is necessary to prevent losses or impending losses; (b) service of written notices to the employees and the DOLE at least one month prior to the intended date; and (c) payment of separation pay. Jurisprudence further requires that losses be substantial, actual or reasonably imminent, reasonably necessary to prevent, and proven by sufficient and convincing evidence such as audited financial statements. Petitioner claimed serious business losses leading to the shutdown of its block ice plant, but there was a dearth of evidence showing it was suffering financial reverses. It could have submitted financial statements audited by independent external auditors but did not. Petitioner also never denied that it failed to satisfy the notice requirement under Article 298, nor did it pay the required separation pay. The failure to prove losses and comply with procedural requirements necessarily meant the dismissal was not justified. The CA correctly found no grave abuse of discretion in the NLRC's ruling of illegal dismissal, and none of the recognized exceptions to the rule that factual findings of the NLRC, when affirmed by the CA, are conclusive on the Court were present.

• Relief Due to Respondents: Under Article 294 of the Labor Code, an illegally dismissed employee is entitled to reinstatement without loss of seniority rights and full backwages computed from the time compensation was withheld up to actual reinstatement. Reinstatement, however, presupposes that the previous position still exists or that an unfilled equivalent position is available. Where reinstatement is no longer viable, separation pay equivalent to one month salary for every year of service is awarded as an alternative, in addition to backwages. Because 14 years had elapsed since respondents' removal, it was unlikely that their former positions or equivalents still existed or were unoccupied, rendering reinstatement no longer viable. In the exercise of equity jurisdiction, which aims to do complete justice where statutory or legal jurisdiction is inflexible, the CA decision was modified to substitute separation pay for reinstatement. Backwages were computed from the date of dismissal until the finality of the decision ordering separation pay, while separation pay was computed from the respondents' first day of employment until the finality of the decision, at the rate of one month pay per year of service.

• Solidary Liability of Genuino Ice: A corporation has a personality separate and distinct from its stockholders and from other corporations to which it may be connected, but the corporate veil may be pierced when the separate personality is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. The doctrine applies in three basic areas: defeat of public convenience, fraud cases, and alter ego cases. Once the veil is pierced, the separate but related corporation becomes solidarily liable in labor cases, even after final judgment and on execution, so long as it is established that the corporate vehicle was deliberately used to unjustly evade the judgment obligation through fraud, bad faith, or malice. Eleven factual circumstances established that petitioner and Genuino Ice used their distinct corporate personalities in bad faith: they shared the same address, officers, and representative; the ice plant was operated by both; Genuino Ice claimed respondents were petitioner's employees while petitioner stood idly by; Genuino Ice filed all pleadings before the Labor Arbiter; Genuino Ice posted the appeal bond for petitioner's appeal; and when respondents tried to collect from the bond, Genuino Ice invoked its separate personality to oppose collection. This evasive maneuver demonstrated that both companies took turns representing each other's common cause, shielding one from liability and vice versa, clearly using the corporate veil to unjustly elude their monetary obligation. The Court treated both companies as one entity for purposes of the litigation and satisfaction of respondents' monetary claims.

• Requirements for Valid Retrenchment — Retrenchment to prevent losses is valid only when three basic requisites are satisfied: (a) proof that retrenchment is necessary to prevent losses or impending losses; (b) service of written notices to the employees and the DOLE at least one month prior to the intended date of retrenchment; and (c) payment of separation pay equivalent to one month pay, or at least one-half month pay for every year of service, whichever is higher. In addition, the losses justifying retrenchment must be: (1) substantial and not de minimis; (2) actual or reasonably imminent; (3) the retrenchment must be reasonably necessary and likely to be effective in preventing the expected losses; and (4) the losses, if already incurred, or the expected imminent losses, must be proven by sufficient and convincing evidence, such as audited financial statements. The Court applied this doctrine by finding that petitioner failed to satisfy any of these requisites — no audited financial statements were submitted, no notices were served, and no separation pay was paid.

• Reliefs for an Illegally Dismissed Employee — An illegally dismissed employee is entitled to two separate and distinct reliefs: reinstatement without loss of seniority rights and full backwages computed from the time compensation was withheld up to actual reinstatement. Where reinstatement is no longer viable — as when the former position no longer exists or no equivalent position is available — separation pay equivalent to one month salary for every year of service is awarded in lieu of reinstatement, in addition to backwages. When separation pay is ordered in lieu of reinstatement, backwages are computed from the time of dismissal until the finality of the decision ordering separation pay, while separation pay is computed from the first day of employment until the finality of the decision. The Court modified the award because 14 years had elapsed, making reinstatement no longer viable.

• Piercing the Veil of Corporate Fiction — The doctrine applies in three basic areas: (1) defeat of public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; (2) fraud cases, when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; and (3) alter ego cases, where a corporation is a mere alter ego or business conduit of another corporation. Once the veil is pierced, the separate but related corporation becomes solidarily liable in labor cases, even after final judgment and on execution, so long as it is established that the corporate vehicle was deliberately used to unjustly evade the judgment obligation through fraud, bad faith, or malice. The key element is the presence of fraud, malice, or bad faith, which imports a dishonest purpose or some moral obliquity and conscious doing of wrong. The Court applied this doctrine by finding that petitioner and Genuino Ice took turns representing each other's cause, with Genuino Ice posting the appeal bond for petitioner but then invoking its separate personality to prevent respondents from collecting on that bond — a clear demonstration of bad faith and use of the corporate veil to evade an obligation.

• "The complete designation of this authorized cause is retrenchment to prevent losses precisely to save a financially ailing business establishment from eventually collapsing. Without the purpose to prevent losses, the termination becomes illegal." — This passage, quoting Perez vs. Comparts Industries, Inc., articulates the essential purpose requirement of retrenchment and explains why petitioner's dismissal of respondents was illegal.

• "The key element is the presence of fraud, malice or bad faith. Bad faith, in this instance, does not connote bad judgment or negligence but imparts a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud." — This passage, quoting Symex Security Services, Inc. vs. Rivera, Jr., defines the standard for piercing the corporate veil in labor cases and was the basis for holding Genuino Ice solidarily liable.

• "The Court cannot allow its intelligence to be insulted by Genuino Ice's representation that it has a corporate personality which is separate and distinct from the petitioner because both companies have pursued legal remedies and measures for the benefit of each other, and made representations that clearly defrauded the respondents." — This passage states the Court's conclusion on piercing the corporate veil, emphasizing the intertwined conduct of the two companies as the decisive factor.

• Career Philippines Shipmanagement, Inc. vs. Serna, 700 Phil. 1 (2012) — Followed. Laid down the parameters of an appeal under Rule 45 from the CA's Rule 65 decision in a labor case, limiting review to whether the CA correctly determined the presence or absence of grave abuse of discretion by the NLRC, not the correctness of the NLRC decision on the merits.

• Perez vs. Comparts Industries, Inc., 796 Phil. 643 (2016) — Followed. Enunciated the three basic requirements and the additional standards for losses justifying retrenchment, which the Court applied to find petitioner's retrenchment invalid.

• Advan Motor, Inc. vs. Veneration, 848 SCRA 421 (2017) — Followed. Explained that backwages and reinstatement are separate and distinct reliefs, and that separation pay is granted where reinstatement is no longer feasible, forming the basis for the modified award.

• Symex Security Services, Inc. vs. Rivera, Jr., G.R. No. 202613, November 8, 2017 — Followed. Held that the veil of corporate fiction can be pierced and a related corporation held solidarily liable in a labor case even after final judgment when the corporate vehicle is used to unjustly evade a judgment obligation through fraud, bad faith, or malice.

• Zambrano vs. Philippine Carpet Manufacturing Corporation, 811 Phil. 569 (2017) — Followed. Enumerated the three basic areas where the doctrine of piercing the corporate veil applies, which the Court used to analyze the relationship between petitioner and Genuino Ice.

• Genuino Ice Company, Inc. vs. Lava, 661 Phil. 729 (2011) — Cited by respondents as resolving the same issues and facts involving co-employees of respondents against Genuino Ice, where the employer was found guilty of illegal dismissal. The Court treated it as persuasive authority supporting affirmance.

• Article 298 (formerly Article 283), Labor Code — Governs closure of establishment and reduction of personnel, authorizing termination due to retrenchment to prevent losses or closing of operations, provided the employer serves written notice on the workers and the DOLE at least one month before the intended date and pays separation pay. The Court applied this provision to find that petitioner failed to comply with all statutory requisites — no notices were served, no separation pay was paid, and no proof of losses was submitted.

• Article 294 (formerly Article 279), Labor Code — Provides for security of tenure, entitling an unjustly dismissed employee to reinstatement without loss of seniority rights and full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement. The Court applied this provision as the basis for awarding backwages and separation pay in lieu of reinstatement.

Carpio (Acting Chief Justice per Special Order No. 2703 dated September 10, 2019), Caguioa, Lazaro-Javier, and Zalameda, JJ., concurred.