H. Aronson & Co., Inc. vs. Associated Labor Union

Where a corporation shortens its corporate life, dissolves, and forms new corporations with the same capital, business, and controlling ownership to take over its operations and absorb only non-union employees, the new corporations are successors-in-interest; the dismissal of union members pursuant to that scheme is an unfair labor practice, and the Court of Industrial Relations has jurisdiction over the successor corporations.

H. Aronson & Co., Inc. was an Aronson family-controlled corporation incorporated in 1920 with an authorized capital stock of P500,000.00, engaged in buying, importing, and selling goods including photo materials, stationery, and school supplies. Its President and General Manager in 1958 was Francis Aronson, and its Assistant Manager was Donato Medel. The labor dispute unfolded under Republic Act No. 875, which defines unfair labor practices, while Republic Act No. 1052, as amended by Republic Act No. 1787, was also invoked in relation to termination upon corporate dissolution.

H. Aronson & Co., Inc., originally known as Moody Aronson & Co., Inc., was incorporated in 1920 with an authorized capital stock of P500,000.00 and a corporate life of 50 years expiring on May 27, 1970. Its corporate purpose was to engage in the business of buying, importing, and selling goods, wares, and merchandise, wholesale and retail, including photo materials and supplies, writing paper, school books, stationery, and stationery supplies. In the course of time it became an Aronson family-controlled corporation. In 1958 its President and General Manager was Francis Aronson, and its Assistant Manager was Donato Medel. That year, thirteen of its twenty-five employees became members of the respondent Associated Labor Union, among them Alejandro Ceniza, Lorenzo Solon, Lucas Atienza, Hospicio Castillo, Eulogio Gernale, Petronio Bustamante, Catalina Aranas, and Maria Cabatingan.

In September 1958, because of the dismissal of Eugenia Solon, a union member, her co-employees who were union members declared a strike, which was soon settled through conciliation negotiations initiated by the Cebu Regional Office of the Department of Labor. Sometime thereafter, the respondent Union and its members made demands for a collective bargaining agreement with the Company to obtain certain benefits in connection with their working conditions. When the Company refused to enter into a collective bargaining agreement, the employees who were union members declared a second strike in December of that year. After some time the Company management acceded to their demands and entered into a collective bargaining agreement with them on January 6, 1959, renewed on March 23, 1960. In this manner the union members obtained labor benefits consisting of union security clause, security of employment, conversion of daily to monthly salaries, sick and vacation leaves, medical and dental care, and similar benefits.

On January 6, 1960, management sent to the employees of the Company letters of termination of employment stating that on July 31, 1961 they would be separated from the service, that on August 1, 1961 they would no longer be in the employ of the Company, and that due to poor business the stockholders desired to dissolve the Corporation or discontinue doing business on or about July 31, 1961. Then on February 13, 1961, Aronson’s original Articles of Incorporation were amended so that, instead of its corporate existence expiring on May 27, 1970, it was made to expire on July 31, 1961. On March 9, 1961, or less than a month after such amendment, Medel was incorporated with a capital stock of P100,000.00, and on July 17 of the same year, Photo Materials was incorporated with an authorized capital stock of P400,000.00. The total authorized capital stock of the two new corporations amounted to P500,000.00, exactly the same authorized capital stock of Aronson. Photo Materials was organized to engage in the business of importing and exporting, buying and selling goods, specifically photographic equipment and supplies, cameras, graphic art films, greeting cards, and to maintain a photo processing laboratory and a photo finishing and photographic studio, while Medel was organized to engage in the business of buying and selling wares and merchandise of all kinds, such as paper and other office materials. The two new corporations were organized to engage in exactly the same business in which Aronson had been engaged, in other words, to take over the latter’s business.

On July 15, 1961, all the employees of Aronson who were members of the respondent Union were required to stop working in spite of the fact that, according to the notice of termination of employment served on them, their services were to be terminated on the 31st of that month. On the other hand, the employees of the Company who were not members of the respondent Union were allowed to continue working up to that date, and thereafter they continued working because they were absorbed or re-employed by the newly organized corporations, Photo Materials and Medel. Medel started its business with the stocks and office equipment of Aronson, and occupied for that purpose one-half of the store and bodega formerly used by the latter; the other half was used by Photo Materials, which started business at the same time as Medel. The new corporations started business a day after the closure of business of Aronson, and the members of the Aronson family who controlled Aronson were in the same controlling position in the two new corporations.

The individual respondents were among the oldest in the service of Aronson. Hospicio Castillo was employed on December 1, 1919, with a salary upon termination of P130.00 and 41 years and 7 months of service; Alejandro Ceniza on February 18, 1929, with P200.00 and 32 years; Lucas Atienza on July 29, 1924, with P127.00 and 37 years; Maria Cabatingan on June 1, 1927, with P170.00 and 34 years; Lorenzo Solon on March 27, 1932, with P130.00 and 29 years and 4 months; Catalina Aranas on April 1, 1933, with P130.00 and 28 years and 3 months; Eulogio Gernale on March 21, 1948, with P127.00 and 13 years and 4 months; and Petronio Bustamante on January 13, 1941, with P120.00 and 20 years.

The CIR found that Aronson was not doing poor business in 1959 or 1960 but was making better business than in 1957 and 1958. In 1957 the Company suffered a net loss of P6,179.50; in 1958 it had a net profit of P7,796.60; in 1959 its net profit increased to P8,930.23; and in 1960 it doubled its net profit to P16,903.63. In 1960 the Company had a surplus and profit in the total amount of P34,084.46. On April 24, 1960, it increased its personnel by adding Patricinio Diaza and Roberto Gorosin, and in January 1960 it gave salary increases to Juanito Solon and Andres Tugot. Although Aronson suffered reduction of import quota allocations beginning 1960 until its quota was abolished in the second quarter of 1960, the CIR found that this did not constitute the primary cause of dissolution. The true cause of the termination of the services of the complainants was their membership with the Associated Labor Union and their union activities.

• Successor-in-Interest and Employer-Employee Relationship: Petitioners argued that Photo Materials and Medel were not mere successors-in-interest or subsidiaries of Aronson and that, therefore, there never had existed a relationship of employer and employee between them, on the one hand, and the individual respondents, on the other.
• Jurisdiction: Petitioners maintained that, in view of the absence of employer-employee relationship, the Court of Industrial Relations had no jurisdiction over Photo Materials and Medel.
• Applicable Law: Petitioners contended that the law applicable to the facts of the case was Republic Act No. 1052, as amended by Republic Act No. 1787, and not Republic Act No. 875.
• Legality of Dismissal: Petitioners argued that the corporate life of Aronson expired on July 31, 1961; that as a consequence the individual respondents were legally dismissed from its service as of that date in accordance with Republic Act No. 1052, as amended by Republic Act No. 1787; and that, independently of this, Aronson properly terminated their services in accordance with the terms of their collective bargaining agreement in force at that time.
• Unfair Labor Practice, Reinstatement, and Back Wages: Petitioners contended that the Court of Industrial Relations erred in finding them guilty of unfair labor practice, in ordering them to reinstate the respondents named in the appealed order either in Aronson or in either one of the other two petitioners, and in ordering them to pay back wages to the individual respondents.

• Successor-in-Interest and Employer-Employee Relationship: Whether Photo Materials and Medel are mere successors-in-interest or subsidiaries of Aronson and whether an employer-employee relationship existed between them and the individual respondents.
• Jurisdiction: Whether the Court of Industrial Relations had jurisdiction over Photo Materials and Medel.
• Applicable Law: Whether Republic Act No. 1052, as amended by Republic Act No. 1787, rather than Republic Act No. 875, governs the case.
• Legality of Dismissal: Whether the expiration of Aronson’s corporate life on July 31, 1961 legally terminated the individual respondents under Republic Act No. 1052, as amended by Republic Act No. 1787, or under the collective bargaining agreement.
• Unfair Labor Practice: Whether the Court of Industrial Relations erred in finding petitioners guilty of unfair labor practice.
• Reinstatement: Whether the Court of Industrial Relations erred in ordering reinstatement in Aronson or either new corporation.
• Back Wages: Whether the Court of Industrial Relations erred in ordering payment of back wages.

• Successor-in-Interest and Employer-Employee Relationship: Yes. The two new corporations were organized to engage in exactly the same business as Aronson, with combined capital equal to Aronson’s and under the same family control, and actually took over its business; they were therefore successors-in-interest.
• Jurisdiction: Yes. The Court of Industrial Relations had jurisdiction over the case and over petitioners, including Photo Materials and Medel.
• Applicable Law: No. The charge was filed and sustained under Republic Act No. 875, and the Court affirmed the CIR’s finding of unfair labor practice.
• Legality of Dismissal: No. The dissolution and termination were part of a plan to dismiss union members, and the claim of poor business was without merit.
• Unfair Labor Practice: No. The CIR correctly found petitioners guilty of unfair labor practice, the true cause of dismissal being union membership and union activities.
• Reinstatement: No. The order to reinstate the individual respondents in Aronson or either new corporation was proper because the new corporations were successors-in-interest.
• Back Wages: No. The order to pay back wages from the time of illegal dismissal until actual reinstatement was in accordance with law.

• Successor-in-Interest and Employer-Employee Relationship: The Court found that the shortening of Aronson’s corporate life and the subsequent incorporation of Medel and Photo Materials were part and parcel of a plan to accomplish the dismissal of the individual respondents. The new corporations had combined capital exactly equal to Aronson’s P500,000.00, engaged in the same business, were controlled by the same Aronson family, started business a day after Aronson closed, and took over Aronson’s stocks, office equipment, and premises. Non-union employees were absorbed or re-employed by the new corporations, while union members were stopped from working before the announced termination date. These facts led to no other conclusion than that the two new corporations actually took over the business of Aronson. They were therefore successors-in-interest, and the CIR correctly treated them as liable for the illegal dismissals.
• Jurisdiction: The Court concluded that the Court of Industrial Relations had jurisdiction over the case and the petitioners. The charge was filed under Republic Act No. 875, and the CIR found petitioners guilty of unfair labor practice. The contention that the CIR had no jurisdiction because there was no employer-employee relationship between the new corporations and the individual respondents did not prevail, because the new corporations were successors-in-interest that took over Aronson’s business. The Court cited Majestic etc. vs. Court of Industrial Relations, Fernando vs. Angat Labor Union, PLASLU vs. Sy, Yu Ki Lam vs. Micaller, and Talisay etc. vs. CIR, et al. in support of its conclusion.
• Applicable Law: The unfair labor practice charge was filed under Section 4(a), subsections (1), (2), and (4) of Republic Act No. 875. The CIR found petitioners guilty under that law, and the Supreme Court affirmed. Petitioners’ reliance on Republic Act No. 1052, as amended by Republic Act No. 1787, did not persuade the Court, which upheld the CIR’s jurisdiction and its finding of unfair labor practice.
• Legality of Dismissal: The claim that Aronson dissolved due to poor business was clearly without merit. The evidence showed that Aronson’s profits increased from 1958 to 1960, that 1960 was more profitable than previous years, that it hired additional employees in April 1960, and that it gave salary increases in January 1960. The reduction and abolition of import quota allocations were general and nationwide and did not constitute the primary cause of dissolution; Aronson resorted to local purchases, and the new corporations engaged in the same business despite the alleged dependence on import quotas. The true cause of the termination of the complainants’ services was their membership with the Associated Labor Union and their union activities. The expiration of Aronson’s corporate life therefore did not legalize the dismissal, because the dissolution was part of a scheme to remove union members.
• Unfair Labor Practice: Prior to 1958, Aronson had no labor trouble worth mentioning. After thirteen of its twenty-five employees joined the respondent Union, two strikes occurred, and the union obtained a collective bargaining agreement with labor benefits. The termination notices, the amendment of the Articles of Incorporation to shorten corporate life, the incorporation of Medel and Photo Materials with identical capital and business, and the absorption of non-union employees by the new corporations revealed a purpose to dismiss employees because of union membership and activities. The CIR correctly found petitioners guilty of unfair labor practice.
• Reinstatement: Because Photo Materials and Medel were successors-in-interest that took over Aronson’s business, the CIR properly ordered the individual respondents reinstated to their former positions under the same terms and conditions of employment, either in Photo Materials or Medel. The order was in accordance with law.
• Back Wages: The illegal dismissal of the individual respondents entitled them to back wages from the time they were illegally dismissed until they were actually reinstated. The CIR’s order granting such back wages was affirmed.

• Successor-in-Interest in Labor Law — When a corporation dissolves and new corporations with the same capital, business, and controlling ownership take over its operations, the new corporations are successors-in-interest and may be held liable for the labor obligations arising from the old corporation’s unfair labor practices. In this case, Photo Materials and Medel were held successors of Aronson because their combined capital equaled Aronson’s, their corporate purposes were identical, the same Aronson family controlled them, they started business a day after Aronson closed, they took over Aronson’s stocks, equipment, and premises, and they absorbed non-union employees.
• Unfair Labor Practice — Dismissal for Union Membership — Under Republic Act No. 875, Section 4(a), subsections (1), (2), and (4), dismissing employees because of union membership or union activities is an unfair labor practice. The Court affirmed the finding that the true cause of the termination of the complainants’ services was their membership with the Associated Labor Union and their union activities, not poor business.
• Corporate Dissolution as Evasion of Labor Obligations — A corporation cannot evade its labor obligations by shortening its corporate life, dissolving, and forming new corporations to continue the same business while dismissing union members. Such a scheme is not bona fide and does not shield the successor corporations from liability. The Court found that the dissolution of Aronson was part of a plan to dismiss the individual respondents because of their union affiliation.
• CIR Jurisdiction over Successor Corporations — The Court of Industrial Relations has jurisdiction over successor corporations where they take over the business of an employer charged with unfair labor practice, even if they deny a direct employer-employee relationship with the dismissed employees. The Court affirmed jurisdiction over Photo Materials and Medel as successors-in-interest of Aronson.

• "The true cause of the termination of the services of the complainants is their membership with the Associated Labor Union and their union activities." — This passage, quoted from the CIR order and left undisturbed on appeal, identifies the decisive factual cause of the dismissals and supports the finding of unfair labor practice.
• "The combined capital of the two new corporations was exactly the amount of the capital stock of Aronson, and the new corporations' corporate purposes were exactly the same as those of Aronson. Indeed, the facts established by the evidence lead to no other conclusion than that the two new corporations actually took over the business of Aronson." — This passage states the evidentiary basis for treating Photo Materials and Medel as successors-in-interest of Aronson.
• "Petitioners' contention that the dissolution of Aronson was due to "poor business" is, upon the record, clearly without merit." — This passage rejects the employer’s asserted business justification and supports the finding that the termination was motivated by union membership and activities.

• Majestic etc. vs. Court of Industrial Relations, L-12607, Feb. 28, 1962 — Cited in support of the Court’s conclusion that the CIR had jurisdiction and correctly found petitioners guilty of unfair labor practice and granted the relief in the appealed order.
• Fernando vs. Angat Labor Union, L-17896, May 30, 1962 — Cited in support of the same conclusion on CIR jurisdiction and the unfair labor practice finding.
• PLASLU vs. Sy, L-18476, May 30, 1964 — Cited in support of the same conclusion on CIR jurisdiction and the unfair labor practice finding.
• Yu Ki Lam vs. Micaller, L-9565, Sept. 14, 1956 — Cited in support of the same conclusion on CIR jurisdiction and the unfair labor practice finding.
• Talisay etc. vs. CIR, et al., 60 O.G. pp. 5143, 5151, Jan. 30, 1960 — Cited in support of the same conclusion on CIR jurisdiction and the unfair labor practice finding.

• Section 4(a), subsections (1), (2), and (4), Republic Act No. 875 — The unfair labor practice charge was filed under these provisions. The CIR found petitioners guilty under this law, and the Supreme Court affirmed, holding that the dismissal of employees because of union membership and union activities constituted unfair labor practice.
• Republic Act No. 1052, as amended by Republic Act No. 1787 — Petitioners invoked this law as the applicable statute for the termination of employment upon Aronson’s corporate dissolution. The Court affirmed the CIR, which had proceeded under Republic Act No. 875 and found petitioners guilty of unfair labor practice, thereby rejecting petitioners’ reliance on this statute.

Concepcion, C.J.; Reyes, J.B.L.; Makalintal; Zaldivar; Fernando; Teehankee; Barredo; Villamor; and Makasiar, JJ., concurred. Castro, J., took no part.