Locsin vs. Nissan Lease Phils. Inc.

A corporate officer whose position is created by the corporation's by-laws and who is elected by the Board of Directors is not a regular employee under the Labor Code, and the legality of his removal is an intra-corporate dispute within the exclusive jurisdiction of the Regional Trial Court, not the Labor Arbiter or the NLRC. The Court may relax procedural rules to rule on the merits when strict adherence would cause substantial injustice, particularly where the tribunal below patently lacks jurisdiction.

NCLPI is a corporation whose Amended By-Laws specifically enumerate the position of Executive Vice-President/Treasurer among its corporate officers, elected annually by the Board of Directors. Locsin held that position from 1992 until January 21, 2005, when he was elected Chairman of the Board. Banson was the President of NCLPI. Prior to the enactment of Republic Act No. 8799, Section 5(c) of Presidential Decree No. 902-A vested jurisdiction over intra-corporate controversies—including controversies in the election or appointment of corporate officers—in the Securities and Exchange Commission. R.A. No. 8799, effective August 8, 2000, transferred that jurisdiction to the Regional Trial Courts.

On January 1, 1992, Arsenio Z. Locsin was elected Executive Vice President and Treasurer (EVP/Treasurer) of Nissan Lease Phils., Inc. (NCLPI). His duties included managing the company's finances, carrying out the Board's directions on financial management, and preparing financial reports advising officers and directors of NCLPI's financial condition. He held this position for thirteen years, having been re-elected annually since 1992, until January 21, 2005, when he was nominated and elected Chairman of NCLPI's Board of Directors.

On August 5, 2005, a little over seven months after his election as Chairman, the NCLPI Board held a special meeting at the Manila Polo Club. One agenda item was the election of a new set of officers. Locsin was neither re-elected Chairman nor reinstated to his previous position as EVP/Treasurer. According to the CA's factual findings, Locsin knew he was simply not re-elected to the position, but objected to the election of new officers upon his lawyer's advice that he could not be "terminated" or replaced as EVP/Treasurer because he had attained tenurial security.

Aggrieved, Locsin filed a complaint for illegal dismissal with prayer for reinstatement, backwages, damages, and attorney's fees before Labor Arbiter Thelma Concepcion on June 19, 2007, against NCLPI and Luis Banson, then President of NCLPI. NCLPI and Banson responded not with a position paper but with a Motion to Dismiss on July 11, 2007, asserting that the Labor Arbiter lacked jurisdiction because the issue involved an intra-corporate dispute. Locsin opposed the motion on August 16, 2007, maintaining that he was an employee of NCLPI.

On March 10, 2008, Labor Arbiter Concepcion denied the Motion to Dismiss, finding an employer-employee relationship and concluding that her office had jurisdiction. NCLPI elevated the case to the CA through a Petition for Certiorari under Rule 65 on June 3, 2008. The CA, on August 28, 2008, reversed and set aside the Labor Arbiter's Order, ruling that Locsin was a corporate officer whose removal was an intra-corporate dispute under RTC jurisdiction. The CA found that the position of EVP/Treasurer was specifically enumerated in NCLPI's Amended By-Laws, that Locsin held it by virtue of annual election by the Board, and that he performed only those functions set forth in the By-Laws or required by the Board. The CA denied Locsin's Motion for Reconsideration on December 9, 2008. Locsin thereafter filed the present petition before the Supreme Court on January 28, 2009.

• Procedural Impropriety of Rule 65: Locsin argued that NCLPI wrongfully filed a petition for certiorari before the CA, as the proper remedy was to proceed with the arbitration and appeal to the NLRC after the Labor Arbiter ruled on the merits. He cited Rule V, Section 6 of the NLRC Rules, which provides that a denial of a motion to dismiss by the Labor Arbiter is not subject to appeal. He further contended that even if grave abuse of discretion existed, certiorari was inappropriate because it violated the doctrine of exhaustion of administrative remedies.
• Regular Employee Status (Four-Fold Test): Locsin maintained that his relationship with NCLPI satisfied the four-fold test: NCLPI had the power to engage his services; he received regular wages with SSS, Philhealth, and withholding tax deductions; NCLPI had the power to terminate his employment; and NCLPI controlled the manner of performance of his functions, as shown by thirteen years of faithful execution of his duties according to company standards.
• Continued Performance of EVP/Treasurer Functions: Locsin asserted that even after his election as Chairman, he essentially continued performing the functions of EVP/Treasurer—handling financial and administrative operations—making him a regular employee. He clarified that he did not dispute the validity of his election as Chairman, but theorized that he never lost his position as EVP/Treasurer because he continuously performed its functions, and thus questioned his "unceremonious removal" at the August 5, 2005 special Board meeting.

• Corporate Officer Status: NCLPI maintained that the CA correctly ruled that the Labor Arbiter lacked jurisdiction, as Locsin was a corporate officer, not an employee, whose position was created by the corporation's By-Laws and filled by annual Board election.
• Procedural Issue Belatedly Raised: NCLPI brushed aside the procedural defect Locsin raised, arguing that the issue was belatedly raised in the Motion for Reconsideration and that, in any case, Rule VI, Section 2(1) of the NLRC Rules did not apply since only appealable decisions, resolutions, and orders were covered.

• Procedural Remedy: Whether the CA had original jurisdiction to review the Labor Arbiter's denial of the Motion to Dismiss under Rule 65, or whether the proper remedy was an appeal to the NLRC under Article 223 of the Labor Code.
• Employee Status: Whether Locsin was a regular employee of NCLPI under the definition of Article 280 of the Labor Code.
• Corporate Officer Status and Jurisdiction: Whether Locsin's position as Executive Vice-President/Treasurer made him a corporate officer, thereby excluding him from the coverage of the Labor Code and placing the dispute within the RTC's jurisdiction as an intra-corporate controversy.

• Procedural Remedy: No. The denial of a motion to dismiss by a Labor Arbiter is an interlocutory order that is not appealable; the proper remedy is to file a position paper, proceed with arbitration, and appeal to the NLRC under Article 223 of the Labor Code, not a petition for certiorari under Rule 65. However, exceptional circumstances justified relaxing the rules.
• Employee Status: No. Locsin did not qualify as a regular employee under Article 280 of the Labor Code because his position was created by the corporation's By-Laws and he held it by virtue of election by the Board of Directors, not by an employer-employee hiring arrangement.
• Corporate Officer Status and Jurisdiction: Yes. Locsin was a corporate officer whose removal was an intra-corporate dispute within the exclusive jurisdiction of the RTC, not the Labor Arbiter or the NLRC, pursuant to Section 5(c) of PD 902-A as transferred by Section 5.2 of R.A. No. 8799.

• Procedural Remedy: The Court agreed with Locsin that NCLPI incorrectly elevated the Labor Arbiter's denial of the Motion to Dismiss to the CA. The denial of a motion to dismiss is interlocutory and not appealable until a final judgment on the merits is rendered. The proper recourse is to file a position paper, interpose the same grounds, participate in the proceedings, and—if aggrieved by the decision—appeal to the NLRC under Article 223 of the Labor Code, which clothes the NLRC with authority to correct a labor arbiter's erroneous assumption of jurisdiction (a form of grave abuse of discretion). A petition for certiorari under Rule 65 is available only when there is no appeal or plain, speedy, and adequate remedy in the ordinary course of law; here, the statutory appeal to the NLRC was that remedy. The Court cited Metro Drug vs. Metro Drug Employees, Texon Manufacturing vs. Millena, Sime Darby Employees Association vs. NLRC, and Westmont Pharmaceuticals vs. Samaniego in support. Nevertheless, the Court relaxed the rules under the Sanchez vs. Court of Appeals framework, finding exceptional circumstances: the parties had fully ventilated their positions, the CA had already ruled on the merits, and the Labor Arbiter patently lacked jurisdiction. Strict enforcement would cause substantial injustice by forcing parties through futile proceedings before a tribunal without jurisdiction.

• Employee Status: The four-fold test indicia relied upon by Locsin—receipt of salaries, SSS deductions, and the element of control—were insufficient to establish regular employment because they were incidents of holding a corporate office, not indicia of a separate employer-employee relationship. The CA correctly found that Locsin failed to identify any circumstance by which NCLPI "engaged his services" as a corporate officer in a manner that would make him an employee. His assumption and retention as EVP/Treasurer was based solely on his election and annual re-elections from 1992 to 2005, and he performed only those functions specifically set forth in the By-Laws or required by the Board. Article 280 of the Labor Code was inapplicable because the position was not one of employment but of corporate office.

• Corporate Officer Status and Jurisdiction: The position of Executive Vice-President/Treasurer was specifically provided for in Article IV, Sections 1 and 4 of NCLPI's Amended By-Laws, which enumerated the officers to be elected by the Board and prescribed the powers and duties of the EVP/Treasurer. Under PD 902-A, corporate officers are those given that character either by the Corporation Code or by the corporation's By-Laws. Section 25 of the Corporation Code (B.P. Blg. 69) likewise provides that corporate officers include the president, secretary, treasurer, and such other officers as may be provided in the By-Laws. In Okol vs. Slimmers World International, citing Tabang vs. NLRC, the Court held that an "office" is created by the charter or By-Laws of the corporation and the officer is elected by the directors or stockholders, whereas an "employee" occupies no office and is employed by the managing officer. Locsin was elected by the NCLPI Board pursuant to the By-Laws, making him a corporate officer. A corporate officer's dismissal is always a corporate act—an intra-corporate controversy arising between a stockholder and a corporation. Under Section 5(c) of PD 902-A, as transferred by Section 5.2 of R.A. No. 8799, jurisdiction over intra-corporate controversies belongs to the RTC, not the Labor Arbiter or NLRC. The Court gave primacy to the element of jurisdiction: since the Labor Arbiter patently lacked jurisdiction, allowing the case to proceed there would cause substantial delay, inconvenience, and injustice. The dismissal was without prejudice to Locsin's filing of an intra-corporate dispute before the proper RTC.

• Corporate Officer vs. Employee Distinction — An "office" is created by the charter of the corporation and the By-Laws, and the officer is elected by the directors or stockholders. An "employee" usually occupies no office and is employed not by action of the directors or stockholders but by the managing officer of the corporation, who also determines compensation. A person whose position is specifically enumerated in the corporation's By-Laws and who is elected by the Board of Directors is a corporate officer, not a regular employee, regardless of indicia such as salary receipt, SSS deductions, or control over performance. The Court applied this doctrine to hold that Locsin, elected annually as EVP/Treasurer under NCLPI's By-Laws, was a corporate officer excluded from Labor Code coverage.

• Jurisdiction over Intra-Corporate Disputes — The dismissal of a corporate officer is always a corporate act or an intra-corporate controversy arising between a stockholder and a corporation. Under Section 5(c) of PD 902-A, as transferred by Section 5.2 of R.A. No. 8799, jurisdiction over controversies in the election or appointment of directors, trustees, officers, or managers of corporations belongs exclusively to the Regional Trial Courts, not to Labor Arbiters or the NLRC. The Court applied this to confirm that Locsin's removal was an intra-corporate dispute outside the Labor Arbiter's jurisdiction.

• Relaxation of Procedural Rules in Exceptional Circumstances — While procedural rules must generally be strictly applied, they may be relaxed in exceptionally meritorious cases to prevent substantial injustice. The Sanchez vs. Court of Appeals guidelines require consideration of: (a) special or compelling circumstances; (b) the merits of the case; (c) a cause not entirely attributable to the fault or negligence of the party favored; (d) lack of any showing that the review sought is frivolous or dilatory; and (e) absence of unjust prejudice to the other party. The Court applied this exception because the Labor Arbiter patently lacked jurisdiction and strict enforcement would force parties through futile proceedings.

• Denial of Motion to Dismiss as Interlocutory — The denial of a motion to dismiss by a Labor Arbiter is an interlocutory order that is not appealable. The aggrieved party's proper recourse is to file a position paper, interpose the same grounds, proceed with the proceedings, and appeal the eventual decision to the NLRC under Article 223 of the Labor Code. A petition for certiorari under Rule 65 is not the proper remedy where the statutory appeal to the NLRC is available, as the NLRC is clothed with authority to correct a labor arbiter's erroneous assumption of jurisdiction.

• "x x x an 'office' is created by the charter of the corporation and the officer is elected by the directors or 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, quoted from Okol vs. Slimmers World International (citing Tabang vs. NLRC), articulates the canonical formulation distinguishing a corporate officer from an employee, the decisive test applied to Locsin's status.

• "Jurisdiction is the power to hear and rule on a case and is the threshold element that must exist before any quasi-judicial officer can act. In the context of the present case, the Labor Arbiter does not have jurisdiction over the termination dispute Locsin brought, and should not be allowed to continue to act on the case after the absence of jurisdiction has become obvious, based on the records and the law." — This passage states the ratio decidendi for the Court's decision to relax procedural rules and rule on the merits: the primacy of jurisdiction over procedure where a tribunal patently lacks authority.

• "x x x Procedural rules are not to be belittled or dismissed simply because their non-observance may have resulted in prejudice to a party's substantive rights. Like all rules, they are required to be followed except only for the most persuasive of reasons when they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed." — Quoted from Lazaro vs. Court of Appeals, this passage defines the controlling standard for when procedural rules may be relaxed, applied here to justify ruling on the merits despite NCLPI's improper resort to Rule 65.

• Metro Drug vs. Metro Drug Employees, G.R. No. 142666, September 26, 2005, 471 SCRA 45 — Controlling precedent on the improper remedy of elevating a Labor Arbiter's denial of a motion to dismiss via Rule 65 certiorari. The Court followed this case in holding that the proper recourse is an appeal to the NLRC under Article 223 of the Labor Code, not a petition for certiorari. Distinguished only in that the CA in Metro Drug correctly denied the Rule 65 petition, whereas the CA in the present case erroneously entertained it and ruled on the merits.

• Okol vs. Slimmers World International, G.R. No. 160146, December 11, 2009, 608 SCRA 97 — Controlling precedent defining the distinction between a corporate officer and an employee, and establishing that a corporate officer's dismissal is an intra-corporate dispute. The Court applied both propositions directly to Locsin's case.

• Tabang vs. NLRC, G.R. No. 121143, January 21, 1997, 266 SCRA 462 — Cited through Okol for the canonical formulation that an "office" is created by the corporation's charter and the officer elected by directors or stockholders, while an "employee" is hired by the managing officer.

• Texon Manufacturing vs. Millena, G.R. No. 141380, April 14, 2004, 427 SCRA 377 — Cited for the proposition that the denial of a motion to dismiss by a Labor Arbiter is an interlocutory order and cannot be appealed until a final judgment on the merits is rendered.

• Sanchez vs. Court of Appeals, G.R. No. 152766, June 20, 2003, 404 SCRA 540 — Controlling authority for the five-element test governing when procedural rules may be relaxed in exceptionally meritorious cases. The Court applied this framework to justify ruling on the merits despite the procedural impropriety.

• Lazaro vs. Court of Appeals, G.R. No. 137761, April 6, 2000, 330 SCRA 208 — Cited for the principle that procedural rules may be relaxed in exceptionally meritorious cases to relieve a litigant of injustice not commensurate with the degree of non-compliance.

• Air Services Cooperative vs. Court of Appeals, G.R. No. 118693, July 23, 1998, 293 SCRA 101 — Cited through Metro Drug for the holding that the NLRC is clothed with sufficient appellate authority under Article 223 of the Labor Code to correct a labor arbiter's erroneous assumption of jurisdiction.

• Section 5(c), Presidential Decree No. 902-A — Vested the SEC (and, after R.A. No. 8799, the RTC) with original and exclusive jurisdiction over controversies in the election or appointment of directors, trustees, officers, or managers of corporations. Applied to establish that Locsin's removal as a corporate officer was an intra-corporate dispute within RTC jurisdiction.

• Section 5.2, Republic Act No. 8799 — Transferred the SEC's jurisdiction over all cases enumerated in Section 5 of PD 902-A to the Regional Trial Courts. Applied to confirm that intra-corporate controversies, including the removal of corporate officers, fall under RTC jurisdiction.

• Section 25, Batas Pambansa Blg. 69 (Corporation Code of the Philippines) — Provides that corporate officers are the president, secretary, treasurer, and such other officers as may be provided in the By-Laws. Applied to confirm that the EVP/Treasurer, as enumerated in NCLPI's By-Laws, was a corporate officer.

• Article IV, Sections 1 and 4, NCLPI Amended By-Laws — Specifically enumerate the position of Executive Vice-President/Treasurer among the officers elected annually by the Board and prescribe the powers and duties of that office. Applied as the decisive evidence that Locsin held a corporate office, not employment.

• Article 223, Labor Code (P.D. No. 442, as amended) — Provides that decisions, awards, or orders of the Labor Arbiter are appealable to the NLRC on grounds including prima facie evidence of abuse of discretion. Applied to establish that the proper remedy for NCLPI was an appeal to the NLRC, not a Rule 65 petition before the CA.

• Article 280, Labor Code — Defines regular employment. The CA held, and the Supreme Court agreed, that this provision was inapplicable because Locsin's position was a corporate office created by the By-Laws, not an employment relationship.

• Section 1, Rule 65, Rules of Court (as amended by A.M. No. 07-7-12-SC) — Governs petitions for certiorari, requiring that there be no appeal or plain, speedy, and adequate remedy in the ordinary course of law. Applied to show that Rule 65 was unavailable because the statutory appeal to the NLRC under Article 223 was an adequate remedy.

• Rule V, Section 6, NLRC Rules — Provides that a denial of a motion to dismiss by a Labor Arbiter is not subject to appeal. Applied to confirm that NCLPI's recourse was not an immediate appeal or certiorari but participation in the proceedings and eventual appeal to the NLRC.

Antonio T. Carpio, Antonio Eduardo B. Nachura, Jose Catral Mendoza, and Maria Lourdes P.A. Sereno concurred. No separate concurring opinions were noted.