Republic of the Philippines vs. NLRC

No employer-employee relationship is created by the acquisition of government assets for privatization under Proclamation No. 50, but the acquiring entity may voluntarily bind itself to pay separation benefits through a board resolution, and such voluntarily assumed obligation prevails over the statutory serious business losses exemption.

Asset Privatization Trust (APT), later succeeded by Privatization and Management Office (PMO), was a government entity created under Proclamation No. 50, Series of 1986, tasked with conserving, provisionally managing, and disposing of government assets identified for privatization. NACUSIP/BISUDECO Chapter was the exclusive bargaining agent for the rank-and-file employees of Bicolandia Sugar Development Corporation (BISUDECO), a corporation engaged in milling and producing sugar. BISUDECO had been incurring heavy losses since the 1980s and obtained loans from Philippine Sugar Corporation (PHILSUCOR) and Philippine National Bank (PNB), secured by its assets and properties. Under Proclamation No. 50, as amended, Administrative Order No. 14, the Deed of Transfer, and the Trust Agreement—all executed around February 1987—PNB ceded its rights and interests over BISUDECO's outstanding loan obligations to the government through APT.

Bicolandia Sugar Development Corporation (BISUDECO) was a corporation engaged in milling and producing sugar, with NACUSIP/BISUDECO Chapter as the exclusive bargaining agent for its rank-and-file employees. Since the 1980s, BISUDECO had been incurring heavy losses and obtained loans from Philippine Sugar Corporation (PHILSUCOR) and Philippine National Bank (PNB), secured by its assets and properties. Under Proclamation No. 50, as amended by Administrative Order No. 14, the Deed of Transfer, and the Trust Agreement—all executed around February 1987—PNB ceded its rights and interests over BISUDECO's outstanding loan obligations to the government through Asset Privatization Trust (APT). The transfer was not for the purpose of continuing BISUDECO's business but for conservation and eventual privatization.

On November 18, 1988, BISUDECO, with APT's conformity, entered into a Supervision and Financing Agreement with PHILSUCOR for the latter to operate and manage the mill until August 31, 1992. Due to BISUDECO's continued failure to pay its loan obligations, APT filed a Petition for Extrajudicial Foreclosure of BISUDECO's mortgaged properties on March 26, 1990. There being no other qualified bidder, APT was issued a certificate of sale upon payment of P1,725,063,044.00. On December 15, 1990, NACUSIP/BISUDECO Chapter and BISUDECO entered into a Collective Bargaining Agreement to be in effect until December 15, 1996, with APT and PHILSUCOR joined as parties.

Sometime in 1992, APT, pursuant to its mandate to dispose of government properties for privatization, decided to sell BISUDECO's assets and properties. On September 1, 1992, it issued a Notice of Termination to BISUDECO's employees, advising them that their services would be terminated within 30 days. NACUSIP/BISUDECO Chapter received the Notice under protest. Prior to the actual sale, APT's Board of Trustees issued a Resolution on September 23, 1992 authorizing the payment of separation benefits to BISUDECO's employees in the event of its privatization. After the employees' dismissal from service, BISUDECO's assets were sold to Bicol Agro-Industrial Producers Cooperative, Incorporated-Peñafrancia Sugar Mill. APT released funds for separation pay, 13th month pay, and accrued vacation and sick leave credits for 1992. However, George Emata, Bienvenido Felina, Domingo Rebancos, Jr., Nelson Berina, Armando Villote, and Roberto Tirao (Emata, et al.) refused to receive their checks "on account of their protested dismissal," premised on their belief that APT's sale of BISUDECO violated their CBA and constituted union busting.

On April 24, 1996, several members of NACUSIP/BISUDECO Chapter filed a Complaint charging APT, BISUDECO, PHILSUCOR, and BAPCI-Peñafrancia with unfair labor practice, union busting, and claims for labor standard benefits. The Labor Arbiter rendered his Decision on January 14, 2000, dismissing the Complaint for lack of merit, finding no union busting since APT was merely disposing of a non-performing government asset pursuant to its mandate. However, the Labor Arbiter ordered APT to pay Emata, et al. their separation benefits since their co-complainants had been able to claim their checks, notwithstanding his acknowledgment that the claims had prescribed under Article 291 of the Labor Code. APT deposited a Cashier's Check in the amount of P116,182.20 with the NLRC and filed a Notice of Partial Appeal on February 8, 2000—one day beyond the reglementary period, having received the Decision on January 26, 2000. Under Executive Order No. 323 dated December 6, 2000, APT was succeeded by PMO.

• Liberality in Procedural Rules: Petitioner argued that there should have been liberal application of procedural rules since dismissal of its appeal would cause grave and irreparable damage to government.
• Prescription: Petitioner alleged that the money claims of the employees had already prescribed since their Complaint for illegal dismissal was filed beyond the three-year prescriptive period under Article 291 of the Labor Code.
• Serious Business Losses: Petitioner argued that even assuming the action had not prescribed, it would still not be liable for separation pay and other benefits since the closure of the business was due to serious losses and financial reverses.
• No Employer-Employee Relationship: Petitioner argued that the transfer of BISUDECO's assets and properties to it by virtue of a foreclosure sale did not create an employer-employee relationship with BISUDECO's employees.
• Commission on Audit Jurisdiction: Petitioner argued that since PMO is an instrumentality of government, any money claim against it should first be brought before the Commission on Audit in view of Commonwealth Act No. 327, as amended by Presidential Decree No. 1445.

• No New Issues: Respondents alleged that the Petition did not raise any new issue that had not already been addressed by the Labor Arbiter, the NLRC, and the Court of Appeals.
• Exercise of Discretion: Respondents argued that the issues raised involve the exercise of discretion by the Court of Appeals and the quasi-judicial agencies.
• Lack of Legal Basis: Respondents argued that the Petition does not specifically mention any law relied upon by petitioner to support its arguments.

• Employer-Employee Relationship: Whether there was an employer-employee relationship between PMO (then APT) and private respondents, and thus whether petitioner is liable to pay the separation benefits of private respondents.
• Serious Business Losses: Whether BISUDECO's closure could be considered serious business losses that would exempt petitioner from payment of separation benefits.
• Prescription: Whether private respondents' claim for labor standard benefits had already prescribed under Article 291 of the Labor Code.
• Procedural Timeliness: Whether petitioner's appeal before the NLRC was filed within the reglementary period.

• Employer-Employee Relationship: No employer-employee relationship was created by APT's acquisition of BISUDECO's assets for privatization under Proclamation No. 50. However, petitioner voluntarily bound itself to pay separation benefits through its Board of Trustees' Resolution dated September 23, 1992, pursuant to its power under Section 12(6) of Proclamation No. 50 to settle liabilities.
• Serious Business Losses: No exemption applies. The serious business losses exemption under Article 298 of the Labor Code applies only to employers, and even assuming petitioner was a substitute employer, a voluntarily assumed contractual obligation to pay separation benefits irrespective of financial position prevails over the statutory exemption.
• Prescription: No, the claims had not prescribed. The three-year prescriptive period under Article 291 begins from the time the act constituting a violation of the worker's right to the benefits was committed, which was after the NLRC resolution became final and executory, not from the date of termination.
• Procedural Timeliness: No, the appeal was filed one day late. Petitioner received the Labor Arbiter's Decision on January 26, 2000, and had until February 7, 2000 to appeal, but filed on February 8, 2000 without explaining the delay. Even assuming liberality were granted, the Petition would still be denied on the merits.

• Employer-Employee Relationship: Under Section 24 of Proclamation No. 50, the transfer of government assets is for the purpose of disposition, liquidation, and/or privatization only. APT was a mere conservator of assets, not a successor employer. As held in Barayoga vs. Asset Privatization Trust, the duties and liabilities of BISUDECO, including monetary liabilities to employees, were not automatically assumed by APT as purchaser of the foreclosed properties. Any assumption of liability must be specifically and categorically agreed upon; labor contracts are in personam and binding only between the parties. However, APT's Board of Trustees issued a Resolution on September 23, 1992 authorizing the payment of separation benefits to BISUDECO's employees in the event of privatization. Under Section 27 of Proclamation No. 50, while employer-employee relations terminate upon sale or disposition, employees retain vested entitlements to accrued compensation and benefits incident to their employment. Under Article III, Section 12(6) of Proclamation No. 50, APT had the power to compromise and release claims or settle liabilities. By issuing the Resolution, petitioner voluntarily bound itself to pay separation benefits even though, as a mere conservator, it was not supposed to be liable.

• Serious Business Losses: While BISUDECO was clearly suffering from serious business losses—having incurred heavy loans from PNB in the 1980s to cover losses, with its financial standing unlikely to improve—the exemption from paying separation pay under Article 298 of the Labor Code applies only to employers. Petitioner was not BISUDECO's employer. Moreover, even assuming petitioner became a substitute employer, the exemption would not apply when the employer voluntarily assumes the obligation to pay regardless of financial situation. As held in Benson Industries Employees Union-ALU-TUCP vs. Benson Industries, Inc., when parties unqualifiedly covenant the payment of separation benefits irrespective of the employer's financial position, the obligatory force of that contract prevails and its terms should be carried out to full effect. Petitioner's Board Resolution voluntarily bound it to pay separation benefits regardless of BISUDECO's financial standing; it cannot now claim exemption due to serious business losses.

• Prescription: The Complaint was filed on April 24, 1996, three years, seven months, and 24 days after termination on September 30, 1992. Under Arriola vs. NLRC, money claims arising from employer-employee relations prescribe in three years under Article 291, while money claims as reparation for illegal acts under the Labor Code prescribe in four years under Article 1146 of the Civil Code. The claim for separation pay, 13th month pay, and accrued leaves are incidental to employer-employee relations. The three-year prescriptive period begins from the time the act constituting a violation of the worker's right to the benefits was committed. The payment of benefits was mandated by the Labor Arbiter on January 14, 2000, and since the case was appealed, the prescriptive period began to run only after the NLRC Resolution became final and executory—10 days after receipt under Rule VII, Section 14 of the NLRC Rules of Procedure. Since the Complaint was filed on April 24, 1996, the claims did not prescribe. Further, the Labor Arbiter did not err in ordering the release of benefits despite the employees' initial refusal to receive their checks, as their refusal was based on an honest belief that their rights were violated, not on negligence or malice. Their co-complainants were able to collect their checks without filing a separate claim before the Commission on Audit, and it is presumed that the funds had already been appropriated and disbursed. Depriving private respondents of their benefits under the same conditions would violate their right to equal protection.

• Procedural Timeliness: Petitioner received the Labor Arbiter's Decision on January 26, 2000, and had 10 days, or until February 7, 2000, to file its appeal under Article 223 of the Labor Code. It filed its Memorandum of Appeal on February 8, 2000—one day late—without explaining the delay. While procedural rules in labor cases may be liberally applied to promote substantial justice, this case involves a government entity whose liability would entail dispensation of public funds, requiring strict scrutiny of the basis for liability. Even assuming liberality were granted, the Petition would still be denied on the merits, as petitioner is liable on the substantive issues.

• No Employer-Employee Relationship in Privatization — Under Proclamation No. 50, the transfer of government assets to APT for privatization does not create an employer-employee relationship with the employees of the corporation undergoing privatization. APT is a mere conservator of assets, not a successor employer. Any assumption of liability must be specifically and categorically agreed upon. Labor contracts are in personam and binding only between the parties; unless expressly assumed, they are not enforceable against the transferee. The Court applied this doctrine to hold that APT was not BISUDECO's substitute employer, but distinguished the case by finding that APT had voluntarily assumed liability through its Board Resolution.

• Voluntary Assumption of Liability Prevails Over Statutory Exemption — When an employer voluntarily and unqualifiedly covenants to pay separation benefits irrespective of its financial position, the obligatory force of that contract prevails over the statutory exemption for serious business losses under Article 298 of the Labor Code. The Court applied this principle to hold that petitioner's Board Resolution authorizing payment of separation benefits constituted a voluntary contractual obligation that could not be defeated by the serious business losses defense.

• Prescription of Money Claims — When the Cause of Action Accrues — Money claims arising from employer-employee relations prescribe in three years under Article 291 of the Labor Code. The prescriptive period is computed from the time the act constituting a violation of the worker's right to the benefits being claimed was committed. When the payment of benefits is mandated by a labor tribunal and the case is appealed, the prescriptive period begins to run only after the appellate tribunal's decision becomes final and executory. The Court applied this rule to hold that the prescriptive period began from private respondents' receipt of the NLRC Resolution dated June 21, 2002, and since the Complaint was filed on April 24, 1996, the claims had not prescribed.

• Commission on Audit Jurisdiction — Exception for Already Appropriated Funds — Money claims against government must generally be filed before the Commission on Audit before satisfaction. However, when the funds have already been appropriated and disbursed—as evidenced by the release of checks to co-complainants without need of a separate COA proceeding—a separate claim before the COA is unnecessary. The Court applied this exception to allow the release of separation benefits to private respondents without filing a separate COA claim.

• "Under Proclamation No. 50, Series of 1986, no employer-employee relationship is created by the acquisition of Asset Privatization Trust (now Privatization and Management Office) of government assets for privatization. It is not obliged to pay for any money claims arising from employer-employee relations except when it voluntarily holds itself liable to pay." — The opening statement of the decision, articulating the core legal principle governing APT's liability in privatization contexts.

• "For petitioner to be liable for private respondents' money claims arising from an employer-employee relationship, it must specifically and categorically agree to be liable for these claims." — States the rule that liability for money claims in privatization requires specific and categorical assumption, not automatic transfer.

• "Even assuming that petitioner became NACUSIP/BISUDECO's substitute employer, the exemption would still not apply if the employer voluntarily assumes the obligation to pay terminated employees, regardless of the employer's financial situation." — Articulates the principle that voluntary contractual obligations to pay separation benefits prevail over the statutory serious business losses exemption.

• "It would be unjust and a violation of private respondents' right to equal protection if they were not allowed to claim, under the same conditions as their fellow workers, what is rightfully due to them." — The equal protection rationale for allowing the release of separation benefits without a separate COA proceeding, given that co-complainants had already collected under the same conditions.

• Barayoga vs. Asset Privatization Trust, 510 Phil. 452 (2005) — Controlling precedent. Held that APT could not be held liable for money claims arising from an employer-employee relationship as a mere transferee of assets for conservation. Established that any assumption of liability must be specifically agreed upon. Also established the significance of the APT Board Resolution dated September 23, 1992 authorizing payment of separation benefits, which the present case relied upon to find voluntary assumption of liability.
• Republic vs. National Labor Relations Commission, 331 Phil. 608 (1996) — Explained that APT is usually joined as a party respondent due to its role as conservator of assets, and its liability is co-extensive with the amount of assets taken over from the privatized firm.
• Benson Industries Employees Union-ALU-TUCP vs. Benson Industries, Inc., 732 SCRA 318 (2014) — Followed. Held that when parties unqualifiedly covenant the payment of separation benefits irrespective of the employer's financial position, the obligatory force of the contract prevails over the statutory exemption for serious business losses.
• Arriola vs. National Labor Relations Commission, 732 SCRA 656 (2014) — Followed. Distinguished money claims arising from employer-employee relations (3-year prescriptive period under Article 291) from money claims as reparation for illegal acts (4-year period under Article 1146 of the Civil Code).
• Auto Bus Transport Systems vs. Bautista, 497 Phil. 863 (2005) — Followed. Stated that the three-year prescriptive period is computed from when the act constituting a violation of the worker's right to benefits was committed.
• National Electrification Administration vs. Morales, 555 Phil. 74 (2007) — Distinguished. Held that while entitlement to claims may be adjudicated by the trial court, a separate action must be filed before the COA for satisfaction. Distinguished in the present case because the funds had already been appropriated and disbursed.
• Lockheed Detective and Watchman Agency vs. University of the Philippines, 686 Phil. 191 (2012) — Distinguished. Reimbursed UP funds garnished by NLRC on the ground that the money claim must first be filed before the COA. Distinguished because in the present case, funds had already been released.
• Commissioner of Public Highways vs. San Diego, 31 SCRA 617 (1970) — Cited in Administrative Circular No. 10-2000 for the rule that government funds and properties may not be seized under writs of execution to satisfy judgments, and that upon determination of State liability, satisfaction must be pursued through COA procedures.

• Proclamation No. 50, Series of 1986, Section 24 — Provides that the transfer of government assets to APT is for the purpose of disposition, liquidation, and/or privatization only, and does not operate to revert assets to the general fund. Applied to establish that APT's acquisition was not for continuing BISUDECO's business.
• Proclamation No. 50, Section 27 — Provides for automatic termination of employer-employee relations upon sale or disposition of government assets, while preserving vested entitlements to accrued compensation and benefits under applicable employment contracts, CBAs, and legislation. Applied to confirm that employees retain entitlements to separation benefits notwithstanding termination.
• Proclamation No. 50, Article III, Section 12(6) — Grants APT the power to compromise and release claims or settle liabilities. Applied to establish that APT had the authority to issue the September 23, 1992 Board Resolution voluntarily assuming liability for separation benefits.
• Labor Code, Article 223 — Governs perfection of appeals in labor cases; appeal must be filed within 10 calendar days from receipt of the Labor Arbiter's decision. Applied to find that petitioner's appeal was filed one day late.
• Labor Code, Article 291 — Money claims arising from employer-employee relations must be filed within three years from accrual of cause of action. Applied to determine that the employees' claims had not prescribed, as the prescriptive period began only after the NLRC resolution became final.
• Labor Code, Article 298 (formerly Article 283) — Allows termination due to closure of establishment; exempts employer from paying separation pay if closure is due to serious business losses. Applied but found inapplicable because petitioner's obligation was voluntarily assumed, not statutory.
• Labor Code, Article 290 — Offenses penalized under the Labor Code prescribe in three years; unfair labor practices must be filed within one year. Cited in distinguishing prescriptive periods for different types of claims.
• Civil Code, Article 1146 — Actions upon injury to the rights of the plaintiff must be instituted within four years. Cited for the four-year prescriptive period applicable to money claims as reparation for illegal acts under the Labor Code.
• State Auditing Code (P.D. No. 1445), Section 26 — COA has jurisdiction over examination, audit, and settlement of all debts and claims of any sort due from or owing to the government. Applied but distinguished, as the funds had already been appropriated and disbursed.
• State Auditing Code, Section 4 — Fundamental principles governing financial transactions of government agencies; no money shall be paid out except in pursuance of appropriation law. Cited for the principle that public funds may only be released upon proper appropriation.
• Commonwealth Act No. 327 — Fixes the time within which the Auditor General shall render decisions and prescribes the manner of appeal. Cited by petitioner as basis for requiring COA proceedings.
• 1987 Constitution, Article II, Section 18 — The State affirms labor as a primary social economic force and shall protect the rights of workers. Applied to support the release of separation benefits to private respondents.
• 1987 Constitution, Article XIII, Section 3 — The State shall afford full protection to labor. Applied to support the principle that workers should be granted all rights enjoyed by similarly situated workers.
• NLRC New Rules of Procedure, Rule VII, Section 14 — Decisions of the Commission become final and executory 10 days after receipt. Applied to determine when the prescriptive period for money claims began to run.
• Supreme Court Administrative Circular No. 10-2000 — Enjoins judges to observe utmost caution in issuing writs of execution to satisfy money judgments against government agencies. Cited for the rationale requiring COA proceedings for money claims against government.

Carpio (Chairperson), Del Castillo, and Mendoza, JJ., concurred. Brion, J., on leave.