Park Hotel vs. Soriano

A sister corporation may not be held solidarily liable for the labor obligations of the employer-corporation unless the corporate veil is pierced by clear and convincing evidence, but corporate officers who acted with malice or bad faith in directing the corporation's affairs are solidarily liable with it for the illegal dismissal of employees.

Park Hotel is a corporation engaged in the hotel business, while Burgos Corporation, which operates J's Playhouse, is its sister company; Gregg Harbutt and Bill Percy served as Park Hotel's General Manager and owner, respectively, and, together with Atty. Roberto Enriquez, were officers and stockholders of Burgos. The dispute implicated the Labor Code's requirements for a valid dismissal, its prohibition against unfair labor practice through interference with the right to self-organization, and Section 31 of the Corporation Code on the personal liability of directors and officers for patently unlawful acts or bad faith in directing corporate affairs.

Park Hotel is a corporation engaged in the hotel business, with Gregg Harbutt as General Manager and Bill Percy as owner; Percy, Harbutt and Atty. Roberto Enriquez were also officers and stockholders of Burgos Corporation, a sister company of Park Hotel which operated J's Playhouse. Manolo Soriano was hired by Park Hotel in July 1990 as a Maintenance Electrician and was transferred to Burgos in 1992. Lester Gonzales was employed by Burgos as a Doorman and later promoted to Supervisor, while Yolanda Badilla worked as a bartender of J's Playhouse operated by Burgos.

In October 1997, the three were dismissed from work for allegedly stealing company properties, Gonzales and Badilla on October 2, 1997 and Soriano on October 6, 1997. Petitioners additionally alleged that Soriano and Gonzales had violated various company rules and regulations contained in several memoranda issued to them, Soriano's alleged infractions including dereliction of duties, loitering during work time, taking unscheduled day-off, persistently absenting himself without leave, arriving late and leaving early, and leaving the work premises to buy something not in relation to his duties, and Gonzales's including drinking while on duty, switching his day-off without the company's consent, using the store house for immoral purposes, having his time record punched in and out by others to cover his absences, and general neglect of duties. After dismissing the respondents, Burgos filed a case for qualified theft against Soriano and Gonzales before the Makati City Prosecutor's Office, but the case was dismissed for insufficiency of evidence.

According to the respondents, the real reason for their dismissal was that they were organizing a union for the company's employees. In his affidavit, Soriano claimed that on October 4, 1997 he was barred from entering the company premises and that the following day Harbutt shouted at him for having participated in the formation of a union, after which he was dismissed from work. Gonzales averred that he was coerced to resign by Percy and Harbutt in the presence of their goons. Badilla claimed that she was likewise forced by Percy and Harbutt to sign a resignation letter, but she refused because she was innocent of the charges against her; she was nevertheless dismissed from service. The three averred that they never received the memoranda containing their alleged violations and argued that these memoranda were fabricated to give a semblance of cause to their termination. Soriano and Gonzales further claimed that the complaint filed against them was only an afterthought, having been filed after petitioners learned that a complaint for illegal dismissal had already been instituted.

The respondents filed complaints for illegal dismissal, unfair labor practice, and payment of moral and exemplary damages and attorney's fees before the Labor Arbiter. The Labor Arbiter found that the respondents were illegally dismissed because the alleged violations charged against them were not reduced in writing and were not made known to them, thus denying them due process; it found that they did not actually receive the memoranda allegedly issued by petitioners and that the same were a mere afterthought to conceal the illegal dismissal. The Labor Arbiter, the NLRC and the Court of Appeals were unanimous in finding that the respondents were dismissed without just cause and due process and that unfair labor practice was committed against them, the Labor Arbiter observing that the immediate impulse of the petitioners was to terminate the organizers and to cripple the union at sight. As to Soriano's employment, the documents he presented — a payroll passbook containing withdrawals and deposits made in 1991 and a payslip issued by Park Hotel covering September to October 1990 — showed only that he was employed by Park Hotel before his transfer to Burgos in 1992, and nothing in those documents stated that he continued to work for Park Hotel from 1992 onwards. The lower tribunals also unanimously found that Percy and Harbutt, in their capacity as corporate officers of Burgos, acted maliciously in terminating the services of the respondents without any valid ground and in order to suppress their right to self-organization.

• Corporate Identity and Piercing of the Veil: Petitioners argued that the Court of Appeals gravely abused its discretion and acted without authority in finding Park Hotel, Bill Percy and Gregg Harbutt, together with Burgos Corporation and its president, to be one and the same entity.
• Absence of Fraud in Corporate Formation: Petitioners maintained that the Court of Appeals committed error in overlooking material circumstances and facts which, if taken into account, would alter the results of its decision, particularly its finding that the said entities were formed in pursuance of the commission of fraud.
• Unfair Labor Practice: Petitioners argued that the Court of Appeals gravely abused its discretion and acted without authority in finding Park Hotel, Bill Percy and Gregg Harbutt, together with Burgos Corporation and its president, guilty of unfair labor practice.
• Park Hotel's Non-Liability: Park Hotel argued that it is not liable on the ground that the respondents were not its employees.
• Percy and Harbutt's Non-Liability: Percy and Harbutt argued that the Court of Appeals committed error in piercing the corporate veil between them and the respondent corporations, thereby making them all solidarily liable to the respondents.

• Union Organizing as the Real Cause of Dismissal: Respondents alleged in their complaints that the real reason for their dismissal was that they were organizing a union for the company's employees.
• Non-Receipt and Fabrication of the Memoranda: Respondents averred that they never received the memoranda containing their alleged violations of company rules and argued that these memoranda were fabricated to give a semblance of cause to their termination.
• Theft Complaint as Afterthought: Soriano and Gonzales claimed that the complaint filed against them was only an afterthought, as it was filed after petitioners learned that a complaint for illegal dismissal had already been instituted against them.

• Validity of the Dismissal: Whether the respondents were validly dismissed.
• Liability of Park Hotel, Percy and Harbutt: Whether, if petitioners are liable, Park Hotel, Percy and Harbutt are jointly and severally liable with Burgos for the dismissal of the respondents.

• Validity of the Dismissal: No. The dismissal was illegal for want of both a just or authorized cause and the opportunity to be heard, and the termination was likewise constitutive of unfair labor practice under Article 248(a) of the Labor Code.
• Liability of Park Hotel, Percy and Harbutt: Partly yes. Park Hotel is exonerated from any liability, the corporate veil between it and Burgos not having been pierced, but Percy and Harbutt are jointly and severally liable with Burgos, having acted in bad faith in directing the affairs of the corporation.

• Validity of the Dismissal: The Labor Arbiter, the NLRC and the Court of Appeals were unanimous in finding that the respondents were dismissed without just cause and due process and that unfair labor practice was committed against them, and such findings of fact, particularly where the Court of Appeals is in absolute agreement with the NLRC and the Labor Arbiter, are accorded not only respect but even finality and are binding upon the Court so long as they are supported by substantial evidence; the function of the Court is limited to the review of alleged errors of law, and no compelling reason existed to disturb the unanimous findings. The requisites for a valid dismissal are that the employee must be afforded due process, that is, an opportunity to be heard and defend himself, and that the dismissal must be for a valid cause under Article 282 of the Labor Code or for any of the authorized causes under Articles 283 and 284. Both elements were completely lacking: the respondents were dismissed without any just or authorized cause and without being given the opportunity to be heard and defend themselves. The law places the burden of proving the validity of the termination of employment on the employer, and failure to discharge this evidentiary burden necessarily means that the dismissal was not justified and therefore illegal; unsubstantiated suspicions, accusations, and conclusions of employers do not provide legal justification for dismissing employees, and in case of doubt such cases should be resolved in favor of labor pursuant to the social justice policy of labor laws and the Constitution. On the unfair labor practice charge, Article 248(a) of the Labor Code considers it an unfair labor practice when an employer interferes with, restrains or coerces employees in the exercise of their right to self-organization, and substantial evidence — such relevant evidence as a reasonable mind might accept as adequate to support a conclusion — is required to support the claim. The respondents were unceremoniously dismissed from work by reason of their intent to form and organize a union, the Labor Arbiter having found that the immediate impulse of the petitioners was to terminate the organizers, to cripple the union at sight, and to frustrate the employees' bid to exercise their right to self-organization.
• Liability of Park Hotel, Percy and Harbutt: Burgos was the respondents' employer at the time they were dismissed. The Court of Appeals' finding that Soriano remained an employee of Park Hotel at the time of his dismissal in 1997 was contrary to the evidence, since the payroll passbook and payslip he presented merely showed that he was employed by Park Hotel before his transfer to Burgos in 1992 and nowhere stated that he continued to work for Park Hotel from 1992 onwards; Park Hotel therefore cannot be made liable for illegal dismissal, as it no longer had Soriano in its employ at the time he was dismissed. Before a corporation can be held accountable for the corporate liabilities of another, the veil of corporate fiction must first be pierced, and it must be sufficiently established that the two companies are actually a single corporate entity such that the liability of one is the liability of the other. A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected; while a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in the case of two corporations, merge them into one when its corporate legal entity is used as a cloak for fraud or illegality. The doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly and cannot be presumed. The respondents utterly failed to prove by competent evidence that Park Hotel was a mere instrumentality, agency, conduit or adjunct of Burgos, or that its separate corporate veil had been used to cover any fraud or illegality committed by Burgos against them; accordingly, Park Hotel and Burgos cannot be considered one and the same entity, and Park Hotel cannot be held solidarily liable with Burgos. Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, Percy and Harbutt are not exempt from liability, because a corporation, being a juridical entity, may act only through its directors, officers and employees, and obligations incurred by them while acting as corporate agents are not their personal liability but the direct accountability of the corporation they represent. Corporate officers may, however, be deemed solidarily liable with the corporation for the termination of employees if they acted with malice or bad faith, and the lower tribunals unanimously found that Percy and Harbutt, in their capacity as corporate officers of Burgos, acted maliciously in terminating the services of the respondents without any valid ground and in order to suppress their right to self-organization. Section 31 of the Corporation Code makes a director personally liable for corporate debts if he willfully and knowingly votes for or assents to patently unlawful acts of the corporation, or if he is guilty of gross negligence or bad faith in directing the affairs of the corporation; thus, Percy and Harbutt, having acted in bad faith in directing the affairs of Burgos, are jointly and severally liable with the latter for the respondents' dismissal. On the reliefs, an employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances and other benefits or their monetary equivalent from the time the compensation was withheld up to actual reinstatement, but in view of the passage of a long period of time since the dismissal it is best to award separation pay instead of reinstatement, consistent with St. Luke's Medical Center, Inc. vs. Notario, where reinstatement proves impracticable and hardly in the best interest of the parties due to the lapse of time since the employee's dismissal. The respondents are therefore entitled to full backwages, inclusive of allowances and other benefits or their monetary equivalent, and separation pay in lieu of reinstatement equivalent to one month salary for every year of service, the awards of separation pay and backwages not being mutually exclusive. The awards of moral and exemplary damages are also in order, moral damages being recoverable where the dismissal was tainted by bad faith or fraud or where it constituted an act oppressive to labor and done in a manner contrary to morals, good customs or public policy, and exemplary damages being recoverable only if the dismissal was done in a wanton, oppressive, or malevolent manner. The grant of attorney's fees is likewise proper, as attorney's fees may be awarded to respondents who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts of petitioners.

• Piercing the Veil of Corporate Fiction — A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected. The separate juridical personality may be disregarded only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime; when it is made as a shield to confuse the legitimate issues; where a corporation is the mere alter ego or business conduit of a person; or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. The wrongdoing must be established clearly and convincingly and cannot be presumed. In this case, the respondents failed to prove by competent evidence that Park Hotel was a mere instrumentality, agency, conduit or adjunct of Burgos, or that Park Hotel's separate corporate veil had been used to cover any fraud or illegality committed by Burgos, so Park Hotel could not be held solidarily liable with Burgos.
• Requisites of a Valid Dismissal — Two requisites must concur: (a) the employee must be afforded due process, that is, he must be given an opportunity to be heard and defend himself; and (b) the dismissal must be for a valid cause as provided in Article 282 of the Labor Code, or for any of the authorized causes under Articles 283 and 284 of the same Code. Both requisites were completely lacking in this case, the respondents having been dismissed without any just or authorized cause and without being given the opportunity to be heard and defend themselves.
• Burden of Proof in Illegal Dismissal — The law mandates that the burden of proving the validity of the termination of employment rests with the employer, and failure to discharge this evidentiary burden necessarily means that the dismissal was not justified and therefore illegal. Unsubstantiated suspicions, accusations, and conclusions of employers do not provide legal justification for dismissing employees, and in case of doubt such cases should be resolved in favor of labor pursuant to the social justice policy of labor laws and the Constitution.
• Unfair Labor Practice — Interference with the Right to Self-Organization — Under Article 248(a) of the Labor Code, it is an unfair labor practice for an employer to interfere with, restrain or coerce employees in the exercise of their right to self-organization. Substantial evidence — such relevant evidence as a reasonable mind might accept as adequate to support a conclusion — is required to support the claim. The respondents were dismissed by reason of their intent to form and organize a union, the petitioners' immediate impulse having been to terminate the organizers and to cripple the union at sight.
• Solidary Liability of Corporate Officers for Bad Faith — A corporation, being a juridical entity, may act only through its directors, officers and employees, and obligations incurred by them while acting as corporate agents are not their personal liability but the direct accountability of the corporation they represent. However, corporate officers may be deemed solidarily liable with the corporation for the termination of employees if they acted with malice or bad faith. Section 31 of the Corporation Code makes a director personally liable for corporate debts if he willfully and knowingly votes for or assents to patently unlawful acts of the corporation, or if he is guilty of gross negligence or bad faith in directing the affairs of the corporation. Percy and Harbutt, having acted in bad faith in directing the affairs of Burgos, were held jointly and severally liable with the latter.
• Separation Pay in Lieu of Reinstatement — An employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances and other benefits or their monetary equivalent from the time the compensation was withheld up to actual reinstatement. Where reinstatement proves impracticable and hardly in the best interest of the parties due to the lapse of time since the employee's dismissal, the employee should instead be awarded separation pay in lieu of reinstatement, equivalent to one month salary for every year of service. The awards of separation pay and backwages are not mutually exclusive and both may be given.
• Moral and Exemplary Damages and Attorney's Fees in Illegal Dismissal — Moral damages may be recovered where the dismissal of the employee was tainted by bad faith or fraud, or where it constituted an act oppressive to labor and done in a manner contrary to morals, good customs or public policy; exemplary damages are recoverable only if the dismissal was done in a wanton, oppressive, or malevolent manner. Attorney's fees may be awarded to respondents who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts of the employer.

• "To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed." — This states the evidentiary standard governing the piercing of the corporate veil and supplies the ratio for exonerating Park Hotel from solidary liability with Burgos.
• "However, corporate officers may be deemed solidarily liable with the corporation for the termination of employees if they acted with malice or bad faith." — This is the controlling formulation distinguishing the liability of the corporate employer from that of its officers, and it is the basis for holding Percy and Harbutt solidarily liable notwithstanding the exoneration of Park Hotel.
• "The requisites for a valid dismissal are: (a) the employee must be afforded due process, i.e., he must be given an opportunity to be heard and defend himself; and (b) the dismissal must be for a valid cause as provided in Article 282 of the Labor Code, or for any of the authorized causes under Articles 283 and 284 of the same Code." — This is the canonical two-requisite test applied to invalidate the dismissal of the respondents.
• "Unsubstantiated suspicions, accusations, and conclusions of employers do not provide for legal justification for dismissing employees. In case of doubt, such cases should be resolved in favor of labor, pursuant to the social justice policy of labor laws and the Constitution." — This passage articulates the employer's evidentiary burden and the pro-labor interpretive rule applied in upholding the finding of illegal dismissal.

• Hantex Trading Co., Inc. vs. Court of Appeals, 438 Phil. 737, 743 (2002) — Cited as authority that findings of fact of the Court of Appeals, particularly when in absolute agreement with those of the NLRC and the Labor Arbiter, are accorded respect and even finality when supported by substantial evidence.
• Quezon City Government vs. Dacara, 460 SCRA 243, 251 (2005) — Cited to support the limitation of the Court's review to alleged errors of law and its refusal to weigh anew factual evidence already considered below.
• Estacio vs. Pampanga I Electric Cooperative, Inc., G.R. No. 183196, August 19, 2009, 596 SCRA 542, 563-564 — Cited as the source of the two requisites for a valid dismissal under Articles 282, 283 and 284 of the Labor Code.
• Times Transportation Co., Inc. vs. National Labor Relations Commission, G.R. Nos. 148500-01, November 29, 2006, 508 SCRA 435, 443 — Cited for the rule that unsubstantiated suspicions, accusations and conclusions of employers do not justify dismissal and that doubts are resolved in favor of labor.
• Standard Chartered Bank Employees Union vs. Hon. Confesor, 476 Phil. 346, 367 (2004) — Cited for the definition of substantial evidence and the requisites of unfair labor practice under Article 248(a) of the Labor Code.
• Siemens Philippines, Inc. vs. Domingo, G.R. No. 150488, July 28, 2008, 560 SCRA 86, 99-100 — Cited for the requirement that the corporate veil must first be pierced before a corporation may be held accountable for the corporate liabilities of another, and for the rule that obligations incurred by corporate agents are the direct accountability of the corporation, subject to the exception of malice or bad faith.
• McLeod vs. National Labor Relations Commission, G.R. No. 146667, January 23, 2007, 512 SCRA 222, 245-246 — Cited for the doctrine of piercing the veil of corporate fiction and the circumstances under which the separate juridical personality may be disregarded.
• Lim vs. Court of Appeals, 380 Phil. 60, 77 (2000) — Cited for the rule that the wrongdoing justifying disregard of the separate juridical personality must be established clearly and convincingly and cannot be presumed.
• St. Luke's Medical Center, Inc. vs. Notario, G.R. No. 152166, October 20, 2010, 634 SCRA 67, 80-81 — Cited as the controlling precedent for awarding separation pay in lieu of reinstatement where reinstatement is impracticable due to the lapse of time since dismissal.
• Aliviado vs. Procter & Gamble Philippines, Inc., G.R. No. 160506, March 9, 2010, 614 SCRA 563, 588 — Cited for the entitlement of an unjustly dismissed employee to reinstatement with full backwages and benefits, and for the award of attorney's fees.
• Eastern Telecommunications Phils., Inc. vs. Diamse, G.R. No. 169299, June 16, 2006, 491 SCRA 239, 251 — Cited for the computation of separation pay in lieu of reinstatement equivalent to one month salary for every year of service.
• Century Canning Corporation vs. Ramil, G.R. No. 171630, August 9, 2010, 627 SCRA 192, 206 — Cited for the rule that awards of separation pay and backwages are not mutually exclusive and both may be granted.
• Sarona vs. National Labor Relations Commission, G.R. No. 185280, January 18, 2012 — Cited for the recoverability of moral and exemplary damages where the dismissal was tainted by bad faith or was done in a wanton, oppressive or malevolent manner.

• Article 282, Labor Code — Cited as the provision enumerating the just causes for termination by the employer, one of the requisites for a valid dismissal; the respondents' dismissal was not supported by any cause under this article.
• Articles 283 and 284, Labor Code — Cited as the provisions governing authorized causes for termination; no authorized cause was shown to justify the respondents' dismissal.
• Article 248(a), Labor Code — Provides that it shall be unlawful for an employer to interfere with, restrain or coerce employees in the exercise of their right to self-organization. The dismissal of the respondents to suppress their union organizing was held to constitute unfair labor practice under this provision.
• Article 288, Labor Code — Cited in the Labor Arbiter's dispositive portion as the basis for the ₱10,000 fine imposed for unfair labor practice, payable to the Commission.
• Section 31, Corporation Code — Provides that directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation, or who are guilty of gross negligence or bad faith in directing the affairs of the corporation, shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. Applied to hold Percy and Harbutt jointly and severally liable with Burgos for the respondents' dismissal.
• Rule 45, Rules of Court — The procedural basis of the petition for review on certiorari seeking to set aside the Decision and Resolution of the Court of Appeals.
• Section 13, Article VIII, Constitution — Cited in the certification accompanying the Decision, attesting that the conclusions were reached in consultation before the case was assigned to the writer of the opinion.

• Justice Presbitero J. Velasco, Jr. (Chairperson)
• Justice Roberto A. Abad
• Justice Jose Portugal Perez (designated Acting Member, per Special Order No. 1299 dated August 28, 2012)
• Justice Jose Catral Mendoza