Sarona vs. NLRC

A corporation organized as a mere continuation or successor of a sole proprietorship to circumvent labor laws and defeat an employee's security of tenure will have its corporate veil pierced, rendering it liable for the employee's full backwages until the finality of the judgment and separation pay computed from the date of hiring under the original proprietorship.

Timoteo Sarona was hired by Sceptre Security Agency, a sole proprietorship owned by Roso Sabalones, in April 1976. Roso ceded Sceptre's license to his daughter, Aida Sabalones-Tan, in 1999, who registered the business under her name. In 2003, Royale Security Agency was incorporated, with Aida's husband and children as incorporators, occupying the same office as Sceptre. Sarona was asked by Sceptre's operations manager to resign from Sceptre and apply at Royale. After a brief assignment, Sarona was informed he would no longer be given assignments per Aida's instructions, prompting him to file an illegal dismissal complaint.

• Employment with Sceptre: Sarona was hired by Sceptre in April 1976. Sceptre was a sole proprietorship owned by Roso Sabalones.
• Transfer of Control: On May 3, 1999, Roso ceded the license to operate Sceptre to his daughter, Aida Sabalones-Tan. Aida registered the business name "Sceptre Security & Detective Agency" under her name with the DTI. On October 14, 1994, Roso sold the property used as Sceptre's principal place of business to Aida and her husband, Wilfredo.
• Incorporation of Royale: Royale Security Agency was incorporated on March 10, 2003. Its incorporators included Wilfredo, and Aida's children Karen and Cesar. Royale held office in the same property previously used by Sceptre.
• Resignation and Re-hiring: On June 20, 2003, Karen, Sceptre's Operation Manager, asked Sarona to submit a resignation letter, representing it was required to apply at Royale. Cesar, Royale's General Manager, gave Sarona an employment application form.
• Dismissal: After a brief period of floating status, Sarona was assigned to Highlight Metal (using Sceptre's patches) and then to WWWE, Inc. (using Royale's patches). His assignment was withdrawn in September 2003. On October 1, 2003, Royale's Security Officer informed Sarona he would no longer be given assignments per Aida's instructions.
• Illegal Dismissal Complaint: Sarona filed a complaint for illegal dismissal on October 4, 2003.
• Execution of Award: Sarona moved for the release of the monetary award under the NLRC decision, expressly stating the receipt was without prejudice to the outcome of his pending petition before the Court of Appeals.

• Piercing the Corporate Veil: Petitioner argued that Royale is a mere alter ego or business conduit of Sceptre, emphasizing that they share the same office, officers, and employees, and that Aida exercised control over both entities. The incorporation of Royale and the orchestrated resignation were designed to circumvent labor laws and defeat his right to security of tenure.
• Computation of Backwages and Separation Pay: Petitioner maintained that backwages should be computed from the time of illegal dismissal until the finality of the decision, not limited to three months. Separation pay should be computed from 1976, factoring in his tenure with Sceptre.
• Waiver: Petitioner contended that receipt of the NLRC monetary award did not bar his appeal because the receipt was qualified and without prejudice to the pending petition.

• Waiver by Satisfaction of Judgment: Respondents countered that Sarona's receipt of the full amount of the NLRC monetary award constituted a waiver of his right to question the validity of the decision.
• Separate Corporate Personality: Respondents argued that Royale possesses a separate and distinct corporate personality from Sceptre. There is no common ownership between the corporation and the sole proprietorship, and the late Roso Sabalones's name does not appear in Royale's Articles of Incorporation.

• Piercing the Corporate Veil: Whether Royale's corporate fiction should be pierced to compel it to recognize Sarona's length of service with Sceptre and hold it liable for benefits accruing from that employment.
• Computation of Backwages: Whether Sarona's backwages should be limited to three months' salary.

• Piercing the Corporate Veil: The corporate veil was pierced because Royale is a mere continuation or successor of Sceptre. Aida exercised actual common control over both entities, and the scheme of inducing Sarona to resign from Sceptre and apply at Royale, only to be dismissed shortly thereafter, demonstrated a perverted use of the corporate fiction to violate his security of tenure. The doctrine applies even if Sceptre is a sole proprietorship, as the equitable piercing doctrine was formulated to prevent hiding behind separate juridical personalities to evade obligations.
• Computation of Backwages: The limitation of backwages to three months was rejected. Backwages must be computed from the time of illegal dismissal until the finality of the decision. The length of service prior to dismissal is inconsequential to the award of backwages, which aims to recover the income lost due to unlawful dismissal.
• Waiver: Receipt of the NLRC award did not bar the appeal because the receipt was qualified as without prejudice to the pending certiorari petition.

• Doctrine of Piercing the Corporate Veil — The corporate veil is pierced when the corporation is a mere alter ego or business conduit of another entity, or when the corporate fiction is used to defeat public convenience, justify a wrong, protect fraud, or defend a crime. The doctrine applies even if one entity is a sole proprietorship, preventing parties from hiding behind separate personalities to evade liabilities. In this case, common control exercised by Aida over both Sceptre and Royale, coupled with the bad faith scheme to circumvent the employee's security of tenure, justified piercing the veil.
• Full Backwages — An illegally dismissed employee entitled to separation pay in lieu of reinstatement is awarded backwages computed from the time of illegal dismissal until the finality of the decision. Length of service prior to dismissal is inconsequential to the computation of backwages.
• Separation Pay Computation with Imputed Service — When the corporate veil is pierced to treat entities as one, separation pay is computed from the commencement of employment with the original entity until the finality of the decision, including the period of "imputed" or "putative" service (the period between illegal dismissal and finality of the decision).

• "A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same."
• "Backwages is a remedy affording the employee a way to recover what he has lost by reason of the unlawful dismissal... the length of service prior to his dismissal is definitely inconsequential."

• Prince Transport, Inc. v. Garcia — Followed. The piercing doctrine applies even if one entity is a single proprietorship, preventing the evasion of liabilities by hiding behind separate personalities.
• Masagana Concrete Products v. NLRC — Followed. Separation pay includes "imputed" or "putative" service, covering the period from illegal dismissal to the finality of the decision.
• Bustamante v. NLRC — Followed. If reinstatement is no longer feasible, backwages are computed from the time of illegal termination until the finality of the decision.
• Leonis Navigation Co., Inc. v. Villamater — Followed. Receipt of the full amount of a judgment award pursuant to a writ of execution does not terminate the case if such receipt is qualified as without prejudice to the outcome of a pending petition for certiorari.

• Article 279, Labor Code (as amended by Section 34, Republic Act No. 6715) — Entitles an unjustly dismissed employee to reinstatement without loss of seniority rights and full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement. Applied to mandate full backwages until finality of judgment when reinstatement is no longer feasible.
• Section 1, Rule 131, Revised Rules of Court — Provides that the burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense. Cited in the context of the CA's reasoning regarding the petitioner's burden to prove the alter ego allegation.
• Section 5, Article VIII, 1987 Constitution — Vests the Supreme Court with the power to review, revise, reverse, modify, or affirm final judgments and orders of lower courts in cases involving only errors or questions of law. Basis for Rule 45 appeals.
• Rule 45, Rules of Court — Governs appeals by certiorari from decisions of the Court of Appeals to the Supreme Court.
• Section 4(c), Rule VI, NLRC Rules — Limits the NLRC to reviewing and deciding only the issues elevated on appeal. Cited in the context of the NLRC's refusal to entertain issues raised only in a reply.

Antonio T. Carpio, Jose Portugal Perez, Maria Lourdes P. A. Sereno, Estela M. Perlas-Bernabe