Peñafrancia Tours and Travel Transport, Inc. vs. Sarmiento

Closure or cessation of business, as an authorized cause for termination, necessitates a complete cessation of operations, and any sale or disposition of the business must be motivated by good faith; a simulated sale designed to circumvent the rights of labor renders the dismissal illegal.

Respondents Sarmiento and Catimbang were employed as bus inspectors by petitioner Peñafrancia Tours. In October 2002, they received termination notices citing irreversible business losses and an impending sale to ALPS Transportation. After receiving separation pay, respondents discovered the original owner, Bonifacio Cu, continued operating the business. The alleged sale to ALPS was rescinded, and another sale to SCBC was executed, yet the Cu family remained in control of the corporation.

• Employment and Termination: Sarmiento (employed since Oct 1993) and Catimbang (employed since Feb 1997) worked as bus inspectors for petitioner, earning ₱198.00/day. They worked seven days a week without rest days or holiday pay. In the first week of October 2002, they received notices of termination citing irreversible business losses.
• Alleged Sale to ALPS: Petitioner claimed it sold the business to the Perez family (ALPS Transportation) due to severe losses. Respondents were introduced to Alfredo Perez as the new owner. On October 30, 2002, respondents received their last pay with a letter stating their application for employment was held in abeyance. They received separation pay and 13th-month pay.
• Reversion and Subsequent Sale: While the illegal dismissal case was pending, Edilberto Perez issued a notice reverting management to Bonifacio Cu effective February 11, 2003. Cu wrote Alfredo Perez regarding the rescission of the sale. In March 2003, Cu executed a "Deed of Sale with Assignment of Franchise (By Way of Dation in Payment)" with SCBC, represented by Willy Deterala, for ₱10 million.
• Continued Operations: Respondents discovered that the Cu family continued to operate the business under the same name, franchises, and routes. The CA noted that the rescission of a ₱60 million sale to ALPS in favor of a ₱10 million sale to SCBC—a company that had not operated a single bus and whose principal office was unknown—confirmed the sale was a sham. Petitioner failed to refute allegations that the Cu family remained in control, evidenced by Bonifacio Bryan Cu signing the verification and Antonio Cu signing the secretary's certificate for the SC petition.

• Management Prerogative: Petitioner argued that a change of ownership in a business concern is not proscribed by law and is a management prerogative, entitling the employer to close the business and terminate employees as a consequence.
• Good Faith: Petitioner maintained that the sale was made in good faith, relying on the Labor Arbiter's findings, and that respondents received all monetary benefits due.
• Absence of Bad Faith: Petitioner claimed there was no compelling reason, such as a dispute or rift, to warrant bad faith termination.
• Business Losses: Petitioner asserted it suffered financial losses, evidenced by its annual income tax return.
• Non-consummated Sale: Petitioner contended that the sale to ALPS was not consummated because the Perez family failed to pay the ₱60 million purchase price.

• Questions of Fact: Respondents argued that petitioner raised questions of fact beyond the province of a Rule 45 petition, which had already been passed upon by the NLRC and CA.
• Sham Sale/Continuity: Respondents countered that the Cu family continued to run the business under the same name and franchises, and that the sales to ALPS and SCBC were simulated.
• Bad Faith: Respondents maintained that the closure was tainted with bad faith and designed to circumvent labor rights.
• Lack of Proof of Losses: Respondents asserted that petitioner failed to establish severe financial constraints.

• Validity of Dismissal: Whether respondents were legally terminated from employment by reason of the sale of the business enterprise and the consequent change or transfer of ownership/management.

• Validity of Dismissal: The dismissal was illegal. Closure of business requires a complete cessation of operations, usually due to financial losses. While a change of ownership is permissible, the sale must be motivated by good faith as a condition for exemption from liability. No actual sale or closure occurred; the transactions with ALPS and SCBC were simulated to circumvent labor rights. The rescission of a ₱60 million sale in favor of a ₱10 million sale to a dummy corporation, coupled with the Cu family's continued control, disproved a bona fide closure. Factual findings of the NLRC, affirmed by the CA, are binding and conclusive.

• Closure of Business as Authorized Cause — Defined as the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the establishment, usually due to financial losses. It aims to prevent further financial drain upon an employer who can no longer pay employees.
• Good Faith in Sale of Business — A change of ownership in a business concern is not proscribed by law, but the sale or disposition must be motivated by good faith as a condition for exemption from liability. Where the change of ownership is done in bad faith or used to defeat the rights of labor, the successor-employer is deemed to have absorbed the employees and is held liable for the transgressions of the predecessor.
• Finality of Factual Findings — Findings of fact of quasi-judicial bodies like the NLRC are accorded respect, even finality, if supported by substantial evidence. When passed upon and upheld by the CA, they are binding and conclusive upon the Supreme Court.

• "Closure of business is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of the establishment, usually due to financial losses."
• "[T]he sale or disposition must be motivated by good faith as a condition for exemption from liability. Thus, where the change of ownership is done in bad faith, or is used to defeat the rights of labor, the successor-employer is deemed to have absorbed the employees and is held liable for the transgressions of his or her predecessor."

• Manlimos v. NLRC, 312 Phil. 178 (1995) — Cited for the proposition that a change of ownership is not proscribed by law, but the sale must be motivated by good faith to exempt the employer from liability.
• Philippine Airlines, Inc. v. NLRC, 358 Phil. 919 (1998) — Followed for the rule that a bad faith change of ownership to defeat labor rights makes the successor-employer liable for the predecessor's transgressions.
• J.A.T. General Services v. NLRC, 465 Phil. 785 (2004) — Cited for the definition of closure of business.
• Ventura v. Court of Appeals, G.R. No. 182570 (2009) — Cited for the doctrine that factual findings of the NLRC, when affirmed by the CA, are binding and conclusive.

• Article 283, Labor Code — Governs closure of establishment and reduction of personnel. Allows termination due to closure or cessation of operations not intended to circumvent labor rights, provided written notice is served to workers and the Department of Labor and Employment at least one month prior.

Carpio, A.T. (Chairperson), Velasco, Jr., P.J., Leonardo-De Castro, T.J., and Mendoza, J.C.