Kay Products, Inc. v. Court of Appeals

Employees who perform activities usually necessary or desirable in the employer’s business for at least one year are regular employees with security of tenure; their purported resignations are not voluntary where ordinary workers are made to sign blank sheets that become resignation letters in a scheme to transfer them to manpower agencies, and their dismissal is illegal, entitling them to reinstatement, backwages, and damages, with bad-faith corporate officers solidarily liable.

KPI is a corporation with a factory, and Kay Lee is its president who actively managed its business. Private respondents Myrna Abila, Flordeliza Morante, and Fe Regidor were KPI factory sewers, and the dispute is governed by the Labor Code’s provisions on regular employment and security of tenure under Articles 279 and 280, as amended.

Myrna Abila, Flordeliza Morante, Fe Regidor, Rowena Escuadro, and Jeofrey del Valle were KPI factory sewers from June to August 1999. The KPI employees held a meeting to form a union within their workplace, and Abila, Morante, Regidor, Escuadro, and Del Valle attended. When KPI management learned of the plan, it called a meeting and announced that the employees would be transferred to Gerrico Resources & Manpower Services, Inc. (GRMSI), an employment agency with which KPI had a manpower contract. Through a Memorandum dated July 13, 2000, KPI, through its president Kay Lee, promised that the employees would receive bigger and better benefits under GRMSI as regular employees thereof. On July 14, 2000, KPI directed all employees concerned to sign resignation letters preparatory to their employment with GRMSI; the employees submitted handwritten letters of resignation, and KPI took custody of their identification cards.

The employees continued to report for work in the KPI factory but received less wages/salaries. On July 31, 2000, KPI issued a Memorandum stating that GRMSI had been dissolved and that the employees needed to sign separate contracts with RCVJ, another corporation with which KPI had a manpower contract. Some employees, including Abila, Morante, Regidor, Escuadro, and Del Valle, refused to sign any contract with RCVJ. In the meantime, on July 25, 2000, the KPI employees organized the Kay Products Employees Union and affiliated it with the Philippine Transport & General Workers Organization (PTGWO).

On August 25, 2000, seventy-three employees, together with the Kay Products Employees Union-PTGWO, filed a complaint with Regional Arbitration Branch No. IV of the DOLE against KPI and Kay Lee for unfair labor practice, underpayment of salaries and service incentive leave pay, and failure to classify them as regular employees; the case was docketed as NLRC Case No. RAB-IV-8-12829-00-L. On September 4, 2000, the employees were ordered to take a two-week leave from work without pay. The employees complained, and when they tried to report for work after the two-week period, they were refused entry and told that they had ceased to be KPI employees since they had resigned upon agreeing to be employed by GRMSI. On October 18, 2000, the employees and their union amended the complaint to illegal dismissal; only Abila, Morante, Regidor, Escuadro, and Del Valle, who signed and verified the amended complaint, remained as complainants.

In their position paper, the complainants alleged that they were illegally dismissed without just or authorized cause and deprived of due process; that KPI interfered with their right to self-organization by deceitfully transferring them to an employment agency, constituting ULP; that they were coerced and intimidated into signing resignation letters; and that they were entitled to money claims, including 13th month pay, service incentive leave pay, vacation and sick leave pay from the time of illegal dismissal until reinstatement. KPI and Kay Lee denied the material allegations and maintained that the complainants voluntarily resigned, pointing to the typewritten resignation letter and other handwritten letters, their clearances, transfer to RCVJ, and failure to return to work; they asserted that KPI never interfered with the workers’ right to self-organization and that the complainants were not entitled to reinstatement, backwages, moral and exemplary damages, and attorney’s fees.

The Labor Arbiter found that the complainants wrote their resignation letters in their own hand and found no showing of force or intimidation; he reasoned that if force or intimidation existed, they should have written “under protest,” “with reservations,” or similar words near their signatures, and that dictation of the contents did not prove unwilling resignation. The NLRC affirmed, holding that the resignation letters and clearances negated involuntariness and that inconsistencies in the complainants’ allegations—filing the case on August 25, 2000 but later claiming dismissal on September 4, 2000—showed the weakness of their claims. The CA, however, found that private respondents were regular employees who had performed activities normally necessary or desirable in KPI’s usual business or trade for more than a year until their severance on September 4, 2000; it also found that they were coerced, threatened, or intimidated into signing blank sheets that became resignation letters whose contents were dictated by KPI’s Director and Personnel Manager, and that their immediate complaint for regularization, continued work within KPI premises, and amended complaint for illegal dismissal after they were barred from entry belied voluntariness.

• Voluntariness of Resignations: Petitioners argued that private respondents were not coerced, threatened, or intimidated into filing their resignation letters; the CA erred in finding that they were forced or intimidated into signing blank sheets, a finding unsupported by evidence. They relied on the Labor Arbiter’s conclusion that if private respondents had been forced, they should have written “under protest,” “with reservations,” or similar words near their signatures, and argued that the one-month-and-twelve-day delay before filing the DOLE complaint cast doubt on their position.
• Finality of Labor Tribunal Findings: Petitioners argued that the CA erred in declaring private respondents illegally dismissed and disregarded the Labor Arbiter and NLRC findings, which should be accorded respect and finality because they were supported by substantial evidence; they cited Pan Pacific Industrial Sales Co., Inc. vs. NLRC, Aboitiz Shipping Corporation vs. Dela Serna, and Rabago vs. NLRC. They prayed that the CA decision be reversed and the Labor Arbiter and NLRC decisions reinstated.

• Coercion and Clearances: Private respondents maintained that they were intimidated and coerced into signing their resignation letters and clearances; they claimed they had to secure clearances because these were needed for the release of benefits due them.
• Illegal Dismissal: Private respondents maintained that the findings of the Labor Arbiter and NLRC were based on flimsy grounds and that the CA did not err in finding that they were illegally dismissed.

• Standard of Review: Whether the SC may review the CA’s factual findings in a petition for review under Rule 45 where the Labor Arbiter and NLRC found voluntary resignation but the CA found the resignations involuntary.
• Voluntariness of Resignation: Whether the CA correctly held that private respondents were coerced, threatened, or intimidated into signing blank sheets that became resignation letters, despite their handwritten resignations.
• Regular Employment and Illegal Dismissal: Whether private respondents were regular employees entitled to security of tenure and whether their transfer to manpower agencies and the refusal of entry amounted to illegal dismissal.
• Reinstatement and Backwages: Whether private respondents are entitled to reinstatement, full backwages, and other benefits after illegal dismissal.
• Moral and Exemplary Damages: Whether moral and exemplary damages may be awarded for a dismissal attended by bad faith and effected in a wanton, oppressive, or malevolent manner.
• Solidary Liability of Kay Lee: Whether Kay Lee, as KPI’s president who actively managed its business, is solidarily liable with KPI for its obligations to the dismissed employees.

• Standard of Review: Yes. Under Rule 45, only questions of law are generally allowed, but factual findings may be reviewed when they conflict, as they did between the Labor Arbiter/NLRC and the CA.
• Voluntariness of Resignation: No. The CA correctly found the resignations involuntary; the handwritten letters and failure to write “under protest” did not establish voluntariness, especially for ordinary factory workers who immediately pursued a regularization complaint.
• Regular Employment and Illegal Dismissal: Yes. Private respondents were regular employees under Article 280, having performed activities necessary or desirable in KPI’s business for more than one year; their transfer to manpower agencies and refusal of entry constituted illegal dismissal.
• Reinstatement and Backwages: Yes. Under Article 279, illegally dismissed employees are entitled to reinstatement without loss of seniority and full backwages; if reinstatement is no longer practicable, separation pay in lieu is proper.
• Moral and Exemplary Damages: Yes. Bad faith was shown by the transfer to two employment agencies to evade regular employment obligations; the dismissal was wanton, oppressive, and without due process, warranting ₱10,000 moral and ₱5,000 exemplary damages to each private respondent.
• Solidary Liability of Kay Lee: Yes. Kay Lee, as president actively managing KPI, decided and signed the transfer memoranda in bad faith; corporate officers may be solidarily liable for termination done with malice or bad faith.

• Standard of Review: The SC began with Rule 45, which allows only questions of law and makes findings of fact of lower courts conclusive, except in enumerated cases. The SC listed the exceptions: (1) findings grounded entirely on speculation, surmises, or conjectures; (2) inference manifestly mistaken, absurd, or impossible; (3) grave abuse of discretion; (4) judgment based on a misapprehension of facts; (5) conflicting findings of fact; (6) CA went beyond the issues or findings contrary to admissions; (7) findings contrary to the trial court; (8) conclusions without citation of specific evidence; (9) facts not disputed by respondents; and (10) findings premised on supposed absence of evidence and contradicted by evidence on record. Because the Labor Arbiter and NLRC found voluntary resignation while the CA found the resignations involuntary, the findings conflicted and the SC had to ascertain which were in accord with the evidence and law.
• Voluntariness of Resignation: The SC affirmed the CA. Resignation is the voluntary act of an employee who believes personal reasons cannot be sacrificed in favor of the exigency of the service and has no other choice but to disassociate himself from employment; it must be made with the deliberate animus or intention of relinquishing the office accompanied by an act of relinquishment. The SC adopted the CA’s finding that private respondents were coerced, threatened, or intimidated into signing blank sheets that became resignation letters, with contents dictated by KPI’s Director and Personnel Manager. It rejected the Labor Arbiter’s reasoning that the absence of “under protest” or “with reservations” showed voluntariness, because private respondents were ordinary factory workers who could not be expected to know the legal significance of such phrases. The immediate filing of a complaint for regularization upon the supposed transfer, their continued work within KPI premises, and the amendment to illegal dismissal after they were barred from entry belied voluntariness; under Molave Tours vs. NLRC, a complaint for illegal dismissal negates voluntary resignation.
• Regular Employment and Illegal Dismissal: Article 280 provides that an employment is regular where the employee is engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, with exceptions for specific project and seasonal employment; any employee who has rendered at least one year of service, continuous or broken, is considered a regular employee with respect to the activity in which he is employed. The SC held that private respondents had attained regular status because they had been working for KPI for more than one year at the time of dismissal and performed activities normally necessary or desirable in KPI’s usual business or trade. The SC ruled that regular employment attaches on the day immediately after the end of the first year of service and cannot be made dependent on a contingency or the fulfillment of requirements. As regular employees, private respondents had security of tenure and could only be terminated for just or authorized cause; KPI’s transfer of them to GRMSI and then RCVJ, followed by the refusal of entry after the two-week leave without pay, amounted to illegal dismissal. It cited Kimberly Independent Labor Union vs. Drilon for the attachment of regular status after one year.
• Reinstatement and Backwages: Article 279 provides that an employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and other privileges and to full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time compensation was withheld up to actual reinstatement. The SC noted that the CA failed to rule on reinstatement and backwages, so it modified the CA decision. It ordered reinstatement and full backwages without deductions from the time of dismissal to actual reinstatement; if reinstatement was no longer practicable or feasible, separation pay of one month salary for every year of employment, with a fraction of at least six months considered as one year. It cited Buhain vs. Court of Appeals for the rule that an illegally dismissed employee should receive compensation from the moment he was unduly deprived of it up to restoration, and that backwages should not be reduced by earnings elsewhere.
• Moral and Exemplary Damages: The SC held that moral damages are recoverable when the dismissal is attended by bad faith or fraud, constitutes an act oppressive to labor, or is done contrary to good morals, good customs, or public policy; exemplary damages may be awarded if the dismissal is effected in a wanton, oppressive, or malevolent manner. The award is based not on the Labor Code but on Article 2220 of the Civil Code. Bad faith was shown by KPI’s transfer of private respondents to two employment agencies to evade its legal responsibility to accord them regular status and benefits, and the dismissal was wanton, oppressive, or malevolent and deprived them of due process. The SC awarded ₱10,000 moral damages and ₱5,000 exemplary damages to each private respondent, citing Cruz vs. NLRC and Lopez vs. NLRC.
• Solidary Liability of Kay Lee: The SC held that corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. Kay Lee, as KPI’s president, actively managed the business, decided the private respondents’ transfer to the employment agencies, and signed the memoranda ordering the transfer in bad faith. The SC cited Uichico vs. NLRC and Naguiat vs. NLRC for the rule that a president who actively manages the business falls within the meaning of “employer” under the Labor Code and may be held jointly and severally liable for the corporation’s obligations to dismissed employees. Thus KPI and Kay Lee were jointly and severally liable.

• Regular Employment under Article 280 — An employment is regular where the employee is engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, except where the employment is fixed for a specific project or is seasonal; any employee who has rendered at least one year of service, continuous or broken, is considered a regular employee with respect to the activity in which he is employed. The SC applied this to private respondents, who worked as factory sewers for more than one year and performed activities necessary or desirable in KPI’s business; regular status attached on the day immediately after the first year, not upon a contingency.
• Security of Tenure and Illegal Dismissal under Article 279 — In regular employment, the employer shall not terminate the employee’s services except for a just cause or when authorized by the Labor Code; an unjustly dismissed employee is entitled to reinstatement without loss of seniority rights and other privileges and to full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time compensation was withheld up to actual reinstatement. The SC applied this after finding private respondents illegally dismissed and ordered reinstatement, backwages, or separation pay in lieu if reinstatement was no longer feasible.
• Voluntariness of Resignation — Resignation is the voluntary act of an employee who finds himself in a situation where he believes personal reasons cannot be sacrificed in favor of the exigency of the service and has no other choice but to disassociate himself from employment; it must be made with the deliberate animus or intention of relinquishing the office accompanied by an act of relinquishment. The SC held that the resignations were involuntary where ordinary workers signed blank sheets that became resignation letters, the contents were dictated, and they immediately filed a complaint for regularization and later illegal dismissal; the absence of “under protest” or “with reservations” did not defeat their claim.
• Solidary Liability of Corporate Officers — Corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith; a president who actively manages the business falls within the meaning of “employer” under the Labor Code and may be held jointly and severally liable. The SC applied this to Kay Lee, who decided and signed the transfer memoranda in bad faith.
• Moral and Exemplary Damages in Illegal Dismissal — Moral damages are recoverable when the dismissal is attended by bad faith or fraud, constitutes an act oppressive to labor, or is done contrary to good morals, good customs, or public policy; exemplary damages may be awarded if the dismissal is effected in a wanton, oppressive, or malevolent manner. The SC applied this after finding bad faith in the transfer to two employment agencies to evade regular employment obligations and awarded ₱10,000 moral and ₱5,000 exemplary damages to each private respondent.
• Review of Factual Findings under Rule 45 — A petition for review on certiorari under Rule 45 allows only questions of law, and findings of fact of lower courts are conclusive except in enumerated cases, including when the findings are conflicting. The SC applied this exception because the Labor Arbiter and NLRC found voluntary resignation while the CA found the resignations involuntary.

• “To be stressed in the fundamental premise that petitioners are regular employees of private respondents, having been performing activities which are normally necessary or desirable in the usual business or trade of the employer for more than a year already, until their severance from work on September 4, 2000.” — The SC quoted and affirmed the CA’s finding that private respondents had attained regular employment status before their severance.
• “The fact that petitioners in this case failed to indicate in their resignation letters the phrase "under protest" or "with reservations" is of no moment. To be stressed anew is the fact that petitioners were ordinary factory workers who could not and should not be expected to know the legal import or significance of some such phrase as "under protest" or "with reservations."" — The SC rejected the Labor Arbiter and NLRC’s reliance on the absence of protest words to uphold voluntariness.
• “In Molave Tours v. NLRC, resignation has been defined as "the voluntary act of an employee who finds himself in a situation where he believes that personal reasons cannot be sacrificed in favor of the exigency of the service, then he has no other choice but to disassociate himself from his employment."" — The SC used this definition to test whether the resignations were voluntary and held that the immediate complaint negated voluntariness.
• “In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith.” — The SC used this to hold Kay Lee solidarily liable with KPI.

• Molave Tours vs. NLRC — SC relied on its definition of resignation and its ruling that the filing of an illegal dismissal complaint negates voluntariness.
• Kimberly Independent Labor Union for Solidarity, Activism And Nationalism-Organized Labor Association In Line Industries and Agriculture vs. Drilon, G.R. No. 77629, 9 May 1990, 185 SCRA 190 — SC cited for the rule that regular employment status attaches to a casual worker on the day immediately after the end of the first year of service, not upon a contingency.
• Buhain vs. Court of Appeals, 433 Phil. 94 (2002) — SC cited for the computation of backwages from the time compensation was withheld up to actual reinstatement.
• Cruz vs. National Labor Relations Commission, G.R. No. 116384, 7 February 2000, 324 SCRA 770 — SC cited for the award of moral damages in dismissals tainted with bad faith.
• Lopez vs. National Labor Relations Commission, G.R. No. 124548, 8 October 1998, 297 SCRA 508 — SC cited for the award of exemplary damages where the dismissal is wanton, oppressive, or malevolent.
• Uichico vs. National Labor Relations Commission, G.R. No. 121434, 2 June 1997, 273 SCRA 35 — SC cited for the solidary liability of corporate directors and officers for termination done with malice or bad faith.
• Naguiat vs. NLRC, G.R. No. 116123, 13 March 1997, 269 SCRA 564 — SC cited for the rule that a president actively managing the business falls within the meaning of “employer” and may be jointly and severally liable.
• Sta. Maria vs. Court of Appeals, G.R. No. 127549, 28 January 1998, 285 SCRA 351 — SC cited for the exceptions to the conclusiveness of factual findings under Rule 45.

• Article 280, Labor Code, as amended — Defines regular and casual employment; the SC applied it to hold private respondents regular employees after more than one year of service in activities necessary or desirable in KPI’s business.
• Article 279, Labor Code, as amended — Provides security of tenure and the rights of an unjustly dismissed employee to reinstatement without loss of seniority and full backwages, allowances, and other benefits; the SC applied it to order reinstatement, backwages, or separation pay in lieu.
• Section 34, Republic Act No. 6715 — Cited as the source of the Article 279 rule on reinstatement and backwages; the SC applied it in awarding full backwages.
• Article 2220, Civil Code — Makes moral damages recoverable for dismissals attended by bad faith, fraud, oppression to labor, or acts contrary to good morals, good customs, or public policy; the SC applied it to award moral damages and, with the finding of wanton and oppressive dismissal, exemplary damages.
• Rule 45, Rules of Court — Limits a petition for review on certiorari to questions of law and makes factual findings conclusive except in enumerated cases; the SC applied the conflicting-findings exception to review the Labor Arbiter/NLRC and CA findings.