Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc.

The merger of a corporation with another does not operate to dismiss the employees of the corporation absorbed by the surviving corporation; rather, the surviving corporation automatically assumes the employment contracts of the absorbed corporation by operation of law, and employees are not entitled to separation pay on account of such merger in the absence of just or authorized causes for termination under the Labor Code or express contractual stipulations providing for such benefit in the event of merger.

This case addresses the intersection of corporate law and labor law, specifically interpreting the effects of a merger under Section 80 of the Corporation Code on the employment status of employees of the absorbed corporation. It clarifies the scope of constitutional protections for labor and security of tenure in the context of corporate restructuring, rejecting the notion that a merger automatically severs the employer-employee relationship or entitles employees to separation benefits.

• Philippine Geothermal, Inc. Employees Union is the duly recognized bargaining agent for the rank-and-file employees of Unocal Philippines, Inc.
• Unocal Philippines is a foreign corporation incorporated under California law, licensed to engage in geothermal exploration and development in the Philippines, and is a wholly owned subsidiary of Union Oil Company of California (Unocal California), which is wholly owned by Union Oil Corporation (Unocal Corporation).
• Unocal Philippines operates geothermal steam fields in Tiwi, Albay and Makiling, Banahaw, Laguna.
• On April 4, 2005, Unocal Corporation executed a Merger Agreement with Chevron Texaco Corporation and Blue Merger Sub, Inc., a wholly owned subsidiary of Chevron, whereby Unocal Corporation merged with Blue Merger, with Blue Merger as the surviving corporation; Chevron became the parent corporation of the merged entities.
• On January 31, 2006, Unocal Philippines and the Union executed a Collective Bargaining Agreement.
• On October 20, 2006, the Union wrote Unocal Philippines requesting separation benefits under the CBA, claiming that the merger resulted in the closure and cessation of operations of Unocal Philippines and the implied dismissal of its employees.
• Unocal Philippines refused the request, asserting that it was not a party to the merger, that its operations continued uninterrupted with the same manpower complement, and that no termination occurred.
• The parties underwent conciliation proceedings before the DOLE but failed to reach an agreement.
• The Union filed a Notice of Strike alleging unfair labor practice but later withdrew it.
• The parties voluntarily submitted the dispute to the Secretary of Labor for arbitration.

• Respondent changed its theory of the case on appeal by claiming before the Secretary of Labor that it entered into a merger and became the surviving corporation, but later arguing before the Court of Appeals that it was not a party to the merger and had a separate corporate personality.
• The Court of Appeals erred in allowing respondent to change its theory on appeal and in deciding the case on this new basis.
• The merger resulted in the severance of the juridical tie between the employees and their original employer, constituting an implied termination of employment.
• The employees had the right to waive their continued employment with the absorbing corporation, and the merger effectively created new employment contracts requiring employee consent.
• The term "cessation of operations" in the CBA and Memorandum of Agreement should be liberally interpreted to include mergers, and doubts must be resolved in favor of labor.

• It did not change its theory on appeal; it consistently maintained that it was not a party to the Merger Agreement as it was Unocal Corporation that entered into the agreement.
• Even if it changed its theory, the exception applies because the new theory does not require the presentation of further evidence by the adverse party.
• The merger did not result in the termination of employment; Unocal Philippines continued its operations with the same employees, tenure, salaries, and benefits intact.
• The CBA and Memorandum of Agreement only provide for separation pay in cases of redundancy, retrenchment, installation of labor-saving devices, or closure and cessation of operations, none of which occurred.
• As a subsidiary with a separate and distinct personality from its parent corporation, Unocal Philippines was unaffected by the merger of Unocal Corporation.

• Procedural:
  • Whether respondent changed the theory of its case on appeal and whether the Court of Appeals erred in allowing such change and deciding the case on that basis.
• Substantive Issues:
  • Whether the Merger Agreement executed by Unocal Corporation, Blue Merger, and Chevron resulted in the termination of the employment of petitioner's members.
  • Whether petitioner's members are entitled to separation benefits under the CBA and Memorandum of Agreement.

• Procedural:
  • The Court found that respondent did change its theory on appeal. Before the Secretary of Labor, it claimed to be a branch of Unocal Corporation and the surviving corporation in the merger; before the Court of Appeals, it claimed to be a subsidiary with separate personality not party to the merger.
  • Raising a factual question for the first time on appeal is prohibited as it violates due process and fair play, denying the adverse party the opportunity to present evidence.
  • The exception allowing change of theory when the adverse party would not need to present further evidence did not apply because petitioner would have needed to present evidence to disprove respondent's new claim regarding its corporate status.
  • The Court of Appeals erred in considering this new argument.
• Substantive:
  • The merger does not result in an implied dismissal of employees. Section 80 of the Corporation Code provides that the surviving corporation assumes all rights, privileges, properties, receivables, and liabilities of the absorbed corporation without further act or deed.
  • Following Bank of the Philippine Islands v. BPI Employees Union, the surviving corporation automatically assumes the employment contracts of the absorbed corporation; the employees become part of the surviving corporation's manpower complement, and their employment subsists.
  • This interpretation is consistent with Article II, Section 18 and Article XIII, Section 3 of the Constitution, which protect labor and guarantee security of tenure.
  • Employees retain the right to resign or retire, and the employer retains the right to terminate for just or authorized causes under the Labor Code, preserving freedom of contract.
  • Separation pay is only due under the CBA for redundancy, retrenchment, installation of labor-saving devices, or closure/cessation of operations. Merger is not included in these circumstances, and the terms cannot be interpreted to include merger absent express contractual stipulation.
  • No authorized causes for termination under Articles 282 and 283 of the Labor Code were present.
  • The Petition was dismissed and the Court of Appeals Decision was affirmed.

• Automatic Assumption of Employment Contracts in Merger — By operation of Section 80 of the Corporation Code, the surviving corporation automatically assumes the employment contracts of the absorbed corporation, and the employees of the absorbed corporation become part of the manpower complement of the surviving corporation without need of express stipulation in the merger agreement or new contracts.
• Security of Tenure in Corporate Mergers — The merger of corporations does not authorize the surviving corporation to terminate employees of the absorbed corporation in the absence of just or authorized causes under the Labor Code; employment contracts subsist unless rejected by the employees themselves or terminated for authorized causes.
• Effects of Merger under Section 80 of the Corporation Code — The surviving corporation acquires all assets, rights, privileges, franchises, and liabilities of the absorbed corporation, including obligations under employment contracts, without further act or deed; this includes the duty to continue employment.
• Change of Theory on Appeal — A party may not change its legal theory on appeal when it raises factual questions requiring the presentation of evidence by the adverse party; exceptions apply only when the adverse party would not be prejudiced or required to present additional evidence.

• "The merger of a corporation with another does not operate to dismiss the employees of the corporation absorbed by the surviving corporation."
• "This is in keeping with the nature and effects of a merger as provided under law and the constitutional policy protecting the rights of labor."
• "The employment of the absorbed employees subsists."
• "Necessarily, these absorbed employees are not entitled to separation pay on account of such merger in the absence of any other ground for its award."
• "The surviving corporation automatically assumes the employment contracts of the absorbed corporation, such that the absorbed corporation's employees become part of the manpower complement of the surviving corporation."
• "In a merger situation, no change of employer is involved; the change is in the internal personality of the employer rather than through the introduction of a new employer which would have novated the contract."

• Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank — Controlling precedent establishing that the surviving corporation automatically assumes employment contracts of the absorbed corporation; cited for the interpretation of Section 80 of the Corporation Code in light of constitutional labor protections and security of tenure.
• Philippine Deposit Insurance Corp. v. Citibank — Cited for the distinction between a branch (not a legally independent unit) and a subsidiary (separate and distinct personality) of a foreign corporation.
• Tan v. Commission on Elections — Cited for the procedural rule that issues not raised in the proceedings below cannot be raised for the first time on appeal.
• Quasha Ancheta Pena and Nolasco Law Office v. LCN Construction Corp. — Cited by respondent regarding the exception to the rule against changing theories on appeal; distinguished by the Court as inapplicable because the adverse party would be prejudiced.
• Bank of Commerce v. Radio Philippines Network, Inc. — Cited for the definition of merger and the effects under Section 80 of the Corporation Code.
• Wiltshire File Co., Inc. v. National Labor Relations Commission — Cited for the definition of redundancy as a ground for separation pay.
• Manila Polo Club Employees' Union v. Manila Polo Club, Inc. — Cited for the definitions of retrenchment and closure or cessation of business as grounds for separation pay.

• Section 80 of the Corporation Code (Batas Pambansa Blg. 68) — Governs the effects of merger or consolidation; provides that the surviving corporation assumes all rights, privileges, franchises, properties, receivables, and liabilities of the constituent corporations without further act or deed.
• Article II, Section 18 of the 1987 Constitution — State policy affirming labor as a primary social economic force and mandating protection of workers' rights and promotion of their welfare.
• Article XIII, Section 3 of the 1987 Constitution — State duty to afford full protection to labor, guarantee security of tenure, and regulate worker-employer relations.
• Articles 282 and 283 of the Labor Code — Provide for just and authorized causes for termination of employment by the employer.
• Article 279 of the Labor Code — Security of tenure of regular employees and conditions for valid termination.
• Article 299 of the Labor Code — Coverage of termination by employer; separation pay not due for voluntary resignation.

• Velasco, Jr., J. — Concurred in the result but noted that this case should be differentiated from G.R. No. 195615 (Bank of Commerce vs. RPN).