PNOC-EDC vs. Leogardo

A government-owned or controlled corporation incorporated under the general Corporation Law, without an original or special charter, is subject to the Labor Code, not the Civil Service Law, under the 1987 Constitution. The manner of creation—not the nature of ownership—is the controlling test. Where dismissal is too harsh a penalty relative to the offense committed and it is a first offense, reinstatement without loss of seniority rights is proper, with backwages limited to three years.

Petitioner Philippine National Oil Company-Energy Development Corporation (PNOC-EDC) is a subsidiary of the Philippine National Oil Company (PNOC), organized as a private corporation under the general Corporation Law and registered with the Securities and Exchange Commission. Private respondent Vicente D. Ellelina was a contractual employee of PNOC-EDC. At the time the controversy arose, the 1973 Constitution was in effect, under which all GOCCs—whether created by special law or incorporated under the general Corporation Law—were covered by the Civil Service Law. The 1987 Constitution later narrowed this coverage to GOCCs with original charters, altering the jurisdictional framework applicable to the case.

Petitioner PNOC-EDC is a subsidiary of the Philippine National Oil Company, organized as a private corporation under the general Corporation Law and registered with the Securities and Exchange Commission. Private respondent Vicente D. Ellelina was employed by PNOC-EDC as a contractual employee. On December 19, 1977, during a Christmas party at petitioner's camp in Uling, Cebu, Ellelina became involved in an incident when the raffle committee refused to give him the prize corresponding to his lost winning ticket. According to petitioner, Ellelina tried to grab the armalite rifle of a PC Officer outside the building despite warning shots fired by the latter, constituting the crime of Alarm or Public Scandal.

On January 20, 1978, PNOC-EDC filed with the Ministry of Labor and Employment, Regional Office No. VII, Cebu City, an application for clearance to dismiss or terminate Ellelina's services on the ground of the alleged commission of that crime. The clearance to dismiss was initially granted but was subsequently revoked, and petitioner was ordered to reinstate Ellelina to his former position without loss of seniority rights, with backwages from February 1, 1978 up to actual reinstatement. Petitioner appealed to the Minister of Labor, who, acting through public respondent Deputy Minister Vicente T. Leogardo, affirmed the revocation on August 14, 1981. PNOC-EDC then elevated the matter to the Supreme Court via a Petition for Certiorari, challenging the labor authority's jurisdiction and the propriety of the reinstatement.

• Lack of Jurisdiction: Petitioner argued that under Article 277 of the Labor Code, the Ministry of Labor and Employment had no jurisdiction over it because it is a government-owned or controlled corporation, whose employees are governed by the Civil Service Law.
• Validity of Dismissal: Petitioner maintained that Ellelina's dismissal was valid and just because it was based upon the commission of a crime—Alarm or Public Scandal—committed during a company Christmas party.

• Coverage under Labor Code: Respondent countered that while petitioner is a subsidiary of PNOC, it is still covered by the Labor Code and within the jurisdiction of the Ministry of Labor, inasmuch as petitioner was organized as a private corporation under the Corporation Law and registered with the Securities and Exchange Commission.
• Estoppel: Respondent argued that petitioner was estopped from assailing the Labor Department's jurisdiction, having subjected itself to the latter's authority when it filed the application for clearance to terminate Ellelina's services.
• Excessive Penalty: Respondent contended that dismissal was too harsh a penalty for the offense committed.

• Jurisdiction over GOCC: Whether public respondent committed grave abuse of discretion in holding that petitioner is governed by the Labor Code.
• Justification of Dismissal: Whether Ellelina's dismissal was justified.

• Jurisdiction over GOCC: No. Grave abuse of discretion was not committed. Under the 1987 Constitution, the test for Civil Service Law coverage is the manner of creation; GOCCs incorporated under the general Corporation Law are governed by the Labor Code.
• Justification of Dismissal: No. The dismissal was too harsh considering the nature of the act committed and that it was a first offense. Reinstatement was proper, with backwages limited to three years.

• Jurisdiction over GOCC: Under the laws in force at the time the controversy arose, Article 277 of the Labor Code and the 1973 Constitution provided that employees of all GOCCs were governed by the Civil Service Law. In National Housing Corporation vs. Juco, the Court held that employees of GOCCs—whether created by special law or formed as subsidiaries under the general Corporation Law—were governed by the Civil Service Law. However, that doctrine was supplanted by the 1987 Constitution, which provides that the Civil Service embraces GOCCs "with original charters." The test thus became the manner of creation: GOCCs created by special charter are subject to the Civil Service Law, while those incorporated under the general Corporation Law are not. In NASECO vs. NLRC, the Court applied the 1987 Constitution to a case arising under the 1973 Constitution, holding that the Constitution in force at the time of decision controls. PNOC-EDC, having been incorporated under the general Corporation Law and lacking an original charter, falls outside Civil Service coverage; its employees are subject to the Labor Code. The Court found no reason to depart from the NASECO ruling.
• Justification of Dismissal: The reinstatement ordered by public respondent was deemed proper. The dismissal was considered too harsh given the nature of the act Ellelina committed and the fact that it was his first offense. Consistent with the Court's rulings, backwages were limited to three years from February 1, 1978, rather than extending to actual reinstatement.

• Manner of Creation Test for GOCC Coverage — Under the 1987 Constitution (Article IX-B, Section 2[1]), the Civil Service embraces GOCCs "with original charters." The test for determining whether a GOCC is subject to the Civil Service Law is the manner of its creation: government corporations created by special charter are subject to the Civil Service Law, while those incorporated under the general Corporation Law are governed by the Labor Code. The Court applied this test to PNOC-EDC, which was incorporated under the general Corporation law and registered with the SEC, concluding that its employees fall under the Labor Code.
• Prospective Application of the 1987 Constitution — In NASECO vs. NLRC, the Court held that the 1987 Constitution governs because it is the Constitution in place at the time of decision, even if the underlying controversy arose under the 1973 Constitution. The Court applied this principle to sustain labor jurisdiction over PNOC-EDC's employees.
• Limitation of Backwages to Three Years — Consistent with the Court's rulings, backwages in illegal dismissal cases are limited to three years, even where reinstatement is ordered without loss of seniority rights.

• "Thus, under the present state of the law, the test in determining whether a government-owned or controlled corporation is subject to the Civil Service Law is the manner of its creation such that government corporations created by special charter are subject to its provisions while those incorporated under the general Corporation Law are not within its coverage." — This passage articulates the controlling test under the 1987 Constitution for distinguishing GOCCs covered by the Civil Service Law from those governed by the Labor Code.
• "We held that the NLRC has jurisdiction over the employees of NASECO 'on the premise that it is the 1987 Constitution that governs because it is the Constitution in place at the time of decision;'" — This quotation from the NASECO ruling establishes the principle that the Constitution in force at the time of decision controls, even for controversies arising under a prior constitution.
• "The dismissal ordered by petitioner was a bit too harsh considering the nature of the act which he had committed and that it was his first offense." — This passage states the rationale for modifying the penalty from dismissal to reinstatement, reflecting the principle that the severity of the penalty must be proportionate to the offense.

• National Housing Corporation vs. Juco, 134 SCRA 172 (1985) — Previously controlling doctrine holding that employees of all GOCCs, whether created by special law or incorporated under the general Corporation Law, were governed by the Civil Service Law under the 1973 Constitution. The Court expressly noted that this doctrine has been supplanted by the 1987 Constitution.
• NASECO vs. NLRC, G.R. No. 69870 (November 29, 1988) — Applied the 1987 Constitution's manner-of-creation test to a case arising under the 1973 Constitution, holding that employees of a GOCC without an original charter are subject to the Labor Code. The Court followed this ruling as directly controlling.

• Article 277, Labor Code (PD 442) — As originally worded, provided that the terms and conditions of employment of all government employees, including employees of GOCCs, shall be governed by the Civil Service Law. The Court cited this provision as the law in force at the time of the controversy, noting that it has since been effectively modified by the 1987 Constitution's narrower coverage.
• Article IX-B, Section 2(1), 1987 Constitution — Provides that the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including GOCCs "with original charters." The Court applied this provision as the controlling constitutional standard, establishing the manner-of-creation test.
• 1973 Constitution (Civil Service provision) — Provided that the Civil Service embraces every branch, agency, subdivision, and instrumentality of the government, including GOCCs, without the "original charter" limitation. The Court contrasted this with the 1987 Constitution to explain the shift in doctrine.

Paras, Padilla, Sarmiento, and Regalado, JJ., concurred.