Siemens Philippines, Inc. vs. Domingo

Constructive dismissal occurs when an employer’s act of non-renewal of a guaranteed consultancy benefit results in substantial diminution of pay, rendering continued employment unreasonable; however, where the consultancy contract is with a separate foreign parent company, the local subsidiary-employer cannot be held liable for the consultancy fees in the computation of separation pay and backwages unless the corporate veil is pierced, and separation pay is properly computed at one month per year of service in the absence of a company policy providing for higher rates.

The case arose from the complex employment relationship of Enrico Domingo with various entities within the Siemens corporate group. Domingo was initially employed by subsidiaries of Siemens Philippines, Inc. (Siemens Philippines) and simultaneously rendered consultancy services for Siemens Aktiengesellschaft (Siemens Germany), the foreign parent company with an investment in Siemens Philippines. The consultancy arrangement, guaranteed to continue for as long as Domingo remained employed by the group, provided substantial additional compensation. When Siemens Philippines took over the business activities of Domingo’s immediate employer (ETSI), it assumed the obligation to ensure the consultancy’s continuation. However, when Siemens Philippines proposed replacing the consultancy with a significantly lower incentive scheme, Domingo resigned and claimed constructive dismissal.

• On March 16, 1987, Enrico Domingo signed an Employment Contract with Maschinen & Technik, Inc. (MATEC), a subsidiary of Siemens Philippines, as a consultant with a compensation package of Php8,000.00/month salary and Php400.00/month allowance.
• Domingo was later given additional work by MATEC, for which he was paid DM1,800.00/month, pursuant to a contract between MATEC and Siemens Germany.
• On January 28, 1992, Domingo became an assistant manager of Electronic Telephone System Industries, Inc. (ETSI), another subsidiary of Siemens Philippines, with a contract provision allowing assignment in favor of Siemens Philippines.
• On March 16, 1992, while still employed by ETSI, Domingo entered into a consultancy agreement with Siemens Germany for twelve months, receiving DM20,000.00 (approximately Php370,000.00 annually), payable once every twelve-month period.
• On March 31, 1992, Siemens Germany sent a guarantee letter to ETSI assuring that the consultancy agreement would be extended for as long as Domingo maintained an employment relationship with ETSI.
• On June 1, 1992, Domingo signed a Contract of Employment with Siemens Philippines, which took over the business activities of ETSI; the contract stipulated that Domingo would suffer no diminution in salary, benefits, and privileges enjoyed as an ETSI employee, and his length of service with ETSI would be credited.
• On March 11, 1993 and March 16, 1994, Siemens Germany renewed the consultancy agreement for twelve months and six months, respectively, with the last contract expiring in September 1994.
• Despite the expiry, Domingo continued rendering consultancy services believing the guarantee letter ensured renewal, and even accompanied Siemens Germany’s General Manager to Hong Kong in January 1995 for a business transaction.
• On October 31, 1994, Siemens Philippines proposed a new incentive scheme to replace the consultancy arrangement, offering a sales compensation package of 20% of peso salary (maximum Php70,000.00 annually), significantly lower than the previous DM20,000.00 (Php370,000.00) annual consultancy fee.
• Feeling humiliated by the substantial diminution of compensation, Domingo tendered his resignation on February 27, 1995, effective March 31, 1995.
• On July 6, 1995, Domingo filed a complaint for illegal dismissal, alleging he was forced to resign due to the non-renewal of the consultancy agreement.

• Siemens Philippines, Inc. and Mr. Ernst H. Behrens argued that they were not parties to the consultancy agreement between Domingo and Siemens Germany, and therefore could not guarantee its extension or renewal.
• They contended that the non-renewal of the consultancy agreement with Siemens Germany did not constitute a circumstance leaving Domingo with no alternative but to resign, and that his resignation was purely voluntary.
• They asserted that since there was no illegal dismissal, there was no basis for holding them liable for backwages, consultancy fees, separation pay, damages, and attorney’s fees.
• They maintained that the consultancy agreement was a separate arrangement with a distinct entity (Siemens Germany), and Siemens Philippines should not be held accountable for the obligations thereof.

• Enrico Domingo argued that he was constructively dismissed because the failure of Siemens Philippines to ensure the renewal of his consultancy contract resulted in a substantial diminution of his pay, making continued employment unbearable.
• He contended that by stepping into the shoes of ETSI, Siemens Philippines assumed the latter’s obligations, including the guarantee for the consultancy contract’s renewal, as evidenced by the employment contract stipulating no diminution of benefits.
• He asserted that Siemens Philippines had knowledge of and acquiesced to the consultancy arrangement, as shown by its failure to question the guarantee letter or the consultancy work despite the employment contract’s prohibition against other work without written consent.
• He argued that the consultancy fee formed part of his compensation package and should be included in the computation of separation pay and backwages.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether respondent Enrico A. Domingo was constructively dismissed from employment.
  • Whether petitioner Siemens Philippines, Inc. is liable for the consultancy fees of Siemens Germany in the computation of separation pay and backwages.
  • Whether Mr. Ernst H. Behrens, as President and CEO, is solidarily liable with Siemens Philippines for Domingo’s monetary claims.
  • Whether the rate of separation pay should be two months per year of service or one month per year of service, and whether consultancy fees should be included in its computation.

• Procedural: N/A
• Substantive:
  • The Court held that Domingo was constructively dismissed because the substantial diminution of pay resulting from the non-renewal of the consultancy agreement rendered continued employment unreasonable, impossible, and unlikely; a reasonable person in Domingo’s position would feel compelled to resign under the circumstances.
  • The Court ruled that while Siemens Philippines was not directly a party to the consultancy agreement, it had stepped into the shoes of ETSI and assumed the obligation to ensure the consultancy’s continuation, making the removal of the benefit a violation of the employment contract’s stipulation against diminution of pay.
  • The Court held that Siemens Philippines cannot be held liable for the consultancy fees in the computation of separation pay and backwages because Siemens Germany is a separate corporate entity, and Domingo failed to present sufficient proof to pierce the corporate veil; the privilege to work for another corporation does not translate to an assumption of liability for that corporation’s obligations.
  • The Court modified the separation pay award from two months per year of service to one month per year of service, finding no evidence of a company policy providing for two months, and explicitly excluded consultancy fees from the computation.
  • The Court held that Behrens is not solidarily liable with the corporation because malice or bad faith was not sufficiently proven; corporate officers are only solidarily liable if they acted with malice or bad faith in terminating the employee.
  • The Court affirmed the award of backwages from the date of constructive dismissal until the finality of the decision, but excluded consultancy fees from the computation.
  • The Court reduced the moral and exemplary damages from Php500,000.00 each to Php50,000.00 each, finding these amounts sufficient to allay Domingo’s sufferings and serve as example for the public good.

• Constructive Dismissal — Defined as quitting when continued employment is rendered impossible, unreasonable, or unlikely as the offer of employment involves a demotion in rank or diminution in pay; the gauge is whether a reasonable person in the employee’s position would feel compelled to give up employment under the prevailing circumstances. Applied in holding that the substantial diminution of Domingo’s compensation due to the non-renewal of the consultancy contract amounted to constructive dismissal.
• Piercing the Corporate Veil — Before a corporation can be held accountable for the corporate liabilities of another, the veil of corporate fiction must first be pierced by showing that the two companies are actually a single corporate entity. Applied in ruling that Siemens Philippines cannot be held liable for Siemens Germany’s consultancy fee obligations absent sufficient proof to pierce the veil.
• Solidary Liability of Corporate Officers — Corporate officers are solidarily liable with the corporation for the termination of employees only if they acted with malice or bad faith. Applied in absolving Behrens from solidary liability due to lack of proof of malice or bad faith.

• "A diminution of pay is prejudicial to the employee and amounts to constructive dismissal."
• "The gauge for constructive dismissal is whether a reasonable person in the employee’s position would feel compelled to give up his employment under the prevailing circumstances."
• "Before a corporation can be held accountable for the corporate liabilities of another, the veil of corporate fiction must first be pierced."
• "An employee who is forced to surrender his position through the employer’s unfair or unreasonable acts is deemed to have been illegally terminated and such termination is deemed to be involuntary."

• Francisco v. NLRC, G.R. No. 170087, August 31, 2006 — Cited for the principle that diminution of pay amounts to constructive dismissal.
• New Ever Marketing, Inc. v. Court of Appeals, G.R. No. 140555, July 14, 2005 — Cited for the definition and elements of constructive dismissal.
• Aguilar v. Burger Machine Holdings Corporation, G.R. No. 172062, October 30, 2006 — Cited for the principle that resignation brought about by harsh, hostile, and unfavorable conditions constitutes constructive dismissal.
• MAM Realty Development Corporation v. NLRC, 314 Phil. 838 (1995) — Cited for the rule that corporate officers are solidarily liable only if they acted with malice or bad faith.
• Aurora Land Projects Corporation v. NLRC, 344 Phil. 44 (1997) — Cited for the rule that reinstatement and backwages are separate and distinct reliefs awarded conjunctively.
• Rutaquio v. NLRC, 375 Phil. 405 (1999) — Cited for the standard computation of separation pay at one month per year of service.

• Article 279 of the Labor Code — Governs the right of an unjustly dismissed employee to reinstatement and full backwages inclusive of allowances and benefits from the time compensation was withheld up to actual reinstatement; cited as basis for computing backwages from the date of constructive dismissal until finality of decision.
• Rule 45 of the Rules of Court — Governs petitions for review on certiorari to the Supreme Court; cited as the procedural basis for the petition.