Uichico vs. NLRC

An employer who retrenches employees must prove alleged or expected business losses with sufficient and convincing evidence; an unsigned and unaudited financial statement is self-serving and devoid of probative value. Corporate directors and officers who assent to patently unlawful acts of the corporation, or act in bad faith or with gross negligence in directing corporate affairs, are solidarily liable with the corporation for the illegal dismissal of employees.

Petitioners were high-ranking officers and directors of Crispa, Inc., a corporation engaged in the operation of a garments factory. Private respondents were employees of Crispa, Inc. for many years. The case involves the application of Article 283 of the Labor Code, which permits retrenchment to prevent losses, and the constitutional guarantee of the right of enterprises to reasonable returns on investment and to expansion and growth, balanced against the social justice provisions favoring labor.

Private respondents were employed by Crispa, Inc. for many years in the latter's garments factory located in Pasig Boulevard, Pasig City. Sometime in September 1991, private respondents' services were terminated on the ground of retrenchment due to alleged serious business losses suffered by Crispa, Inc. in the years immediately preceding 1990. Thereafter, in November 1991, respondent employees filed before the NLRC three separate complaints for illegal dismissal and diminution of compensation against Crispa, Inc., Valeriano Floro, and the petitioners. Valeriano Floro was a major stockholder, incorporator, and Director of Crispa, Inc., while the petitioners were high-ranking officers and directors of the company. The complaints were consolidated and assigned to Labor Arbiter Raul Aquino.

In sustaining the company's submission that it suffered serious business losses in 1991, the Labor Arbiter relied on a Financial Report submitted by the company showing a net loss of Forty-Three Million Four Hundred Eighteen Thousand Two Hundred Seventy-Two and Ninety-Eight Centavos (P43,418,272.98) in 1991. The Labor Arbiter found that the company was indeed suffering from financial reverses that would justify its decision to close down its business.

The NLRC, however, reversed the Labor Arbiter's findings, observing that the Statement of Profit and Losses submitted by the company did not bear the signature of a certified public accountant nor was it audited by an independent auditor, and thus had no evidentiary value. The NLRC ruled that the alleged financial losses which caused the temporary closure of Crispa, Inc. had not been sufficiently established, rendering the termination of the complainants illegal. Petitioners, in their Reply to Comment of Public Respondent, conceded the NLRC's finding that they utterly failed to establish the alleged financial losses borne by Crispa, Inc., but assailed the NLRC's decision holding them solidarily liable with the company for the payment of separation pay and backwages, contending that such award is a corporate obligation that must be assumed by Crispa, Inc. alone.

• Concession of Illegal Dismissal: Petitioners conceded, albeit belatedly, the NLRC's finding that they failed to establish the alleged financial losses borne by Crispa, Inc., thus making the company guilty of illegal dismissal against the private respondents.
• Solidary Liability: Petitioners contended that the award of backwages and separation pay is a corporate obligation and must therefore be assumed by Crispa, Inc. alone, not by them personally.

• Lack of Evidentiary Value of Financial Statement: The NLRC ruled that the Statement of Profit and Losses submitted by Crispa, Inc. to prove its alleged losses, without the accompanying signature of a certified public accountant or audit by an independent auditor, was self-serving and devoid of probative value, and thus not the sufficient and convincing evidence necessary to discharge the burden of proof.
• Bad Faith of Corporate Officers: The NLRC found that petitioners had a direct hand in the illegal dismissal, having signed the Board Resolution retrenching private respondents on the feigned ground of serious business losses, which was indicative of bad faith warranting solidary liability.

• Validity of Retrenchment: Whether the retrenchment of private respondents was valid, given the alleged serious business losses of Crispa, Inc.
• Solidary Liability of Corporate Officers: Whether petitioners, as directors and officers of Crispa, Inc., may be held solidarily liable with the corporation for the payment of separation pay and backwages to the illegally dismissed employees.

• Validity of Retrenchment: No. The retrenchment was illegal because the alleged business losses were not proven by sufficient and convincing evidence; the unsigned and unaudited Statement of Profit and Losses had no probative value.
• Solidary Liability of Corporate Officers: Yes. Petitioners, having signed the Board Resolution for retrenchment based on feigned losses, acted in bad faith and were properly held jointly and severally liable with Crispa, Inc. for all money claims of the illegally terminated employees.

• Validity of Retrenchment: The Court recognized the right of every business entity to reduce its work force when made necessary by compelling economic factors, citing Article 283 of the Labor Code, which permits retrenchment to prevent losses. However, since retrenchment strikes at the very core of an individual's employment, the burden falls upon the employer to prove economic or business losses with appropriate supporting evidence. The Court adopted the standards established in Lopez Sugar Corp. vs. FFW: (1) the losses expected and sought to be avoided must be substantial and not merely de minimis in extent; (2) the substantial losses apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer; (3) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (4) the alleged losses, if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The Court agreed with the NLRC that while administrative and quasi-judicial bodies are not bound by technical rules of procedure, the evidence presented must at least have a modicum of admissibility for it to be given some probative value. The Statement of Profit and Losses, without the signature of a certified public accountant or audit by an independent auditor, was nothing but a self-serving document treated as a mere scrap of paper devoid of probative value.

• Solidary Liability of Corporate Officers: The Court acknowledged the general rule that a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf, and that obligations incurred by the corporation are its sole liabilities. However, the Court enumerated exceptional circumstances warranting solidary liability: (1) when directors and trustees or officers vote for or assent to patently unlawful acts of the corporation, act in bad faith or with gross negligence in directing corporate affairs, or are guilty of conflict of interest; (2) when a director or officer has consented to the issuance of watered stocks; (3) when a director, trustee, or officer has contractually agreed to hold himself personally and solidarily liable; or (4) when a director, trustee, or officer is made, by specific provision of law, personally liable for his corporate action. In labor cases, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. The Court found it undisputed that petitioners had a direct hand in the illegal dismissal, having signed the Board Resolution retrenching private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement. This was indicative of bad faith on the part of petitioners, for which they could be held jointly and severally liable with Crispa, Inc.

• Retrenchment to Prevent Losses — Retrenchment is the termination of employment initiated by the employer through no fault of the employee, resorted to during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program, or the introduction of new methods or more efficient machinery. While it is a management prerogative, the employer bears the burden of proving economic or business losses with appropriate supporting evidence. The Court applied this doctrine in finding the retrenchment illegal because the employer failed to discharge its burden of proof.

• Standards for Valid Retrenchment — Before any reduction of personnel becomes legal, the following standards must be satisfied: (1) the losses expected and sought to be avoided must be substantial and not merely de minimis in extent; (2) the substantial losses apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer; (3) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (4) the alleged losses, if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The Court applied these standards in affirming the NLRC's finding of illegal dismissal.

• Solidary Liability of Corporate Directors and Officers — As an exception to the general rule of separate corporate personality, directors and officers may be held solidarily liable with the corporation when they: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing corporate affairs; or (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons. In labor cases, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. The Court applied this doctrine in holding petitioners solidarily liable for having signed the Board Resolution for retrenchment based on feigned losses.

• Evidentiary Requirements in Labor Cases — While administrative and quasi-judicial bodies like the NLRC are not bound by the technical rules of procedure, this procedural rule should not be construed as a license to disregard fundamental evidentiary rules. The evidence presented must at least have a modicum of admissibility for it to be given some probative value. The Court applied this doctrine in ruling that the unsigned and unaudited Statement of Profit and Losses was self-serving and devoid of probative value.

• "The Statement of Profit and Losses submitted by Crispa, Inc. to prove its alleged losses, without the accompanying signature of a certified public accountant or audited by an independent auditor, are nothing but self-serving documents which ought to be treated as a mere scrap of paper devoid of any probative value." — This passage articulates the Court's ruling on the evidentiary insufficiency of the financial statement, which was the basis for affirming the finding of illegal dismissal.

• "In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith." — This passage states the controlling doctrine on solidary liability of corporate officers in labor cases, which the Court applied to hold petitioners personally liable.

• "They were the ones, who as high-ranking officers and directors of Crispa, Inc., signed the Board Resolution retrenching private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement which, to repeat, had no evidentiary value whatsoever. This is indicative of bad faith on the part of petitioners for which they can be held jointly and severally liable with Crispa, Inc. for all the money claims of the illegally terminated respondent employees in this case." — This passage establishes the factual basis for the finding of bad faith and the resulting solidary liability of the petitioners.

• Lopez Sugar Corp. vs. Federation of Free Workers, 189 SCRA 179 [1990] — Cited as the source of the four standards for valid retrenchment, particularly the requirement that alleged losses must be proved by sufficient and convincing evidence. The NLRC relied on this case in reversing the Labor Arbiter's finding of financial reverses.

• Balbalec vs. National Labor Relations Commission, 251 SCRA 398 [1995] — Cited for the proposition that the burden falls upon the employer to prove economic or business losses with appropriate supporting evidence, and for the constitutional guarantee of the right of enterprises to reasonable returns on investment and to expansion and growth.

• Sebuguero vs. National Labor Relations Commission, 248 SCRA 532 [1995] — Cited for the definition of retrenchment as the termination of employment initiated by the employer through no fault of the employee.

• Manggagawa ng Komunikasyon sa Pilipinas vs. NLRC, 194 SCRA 573 [1991] — Cited for the proposition that retrenchment strikes at the very core of an individual's employment, which may be the only lifeline on which he and his family depend for survival.

• Santos vs. National Labor Relations Commission, 254 SCRA 673 [1996] — Cited for the general rule that a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf, and that obligations incurred by the corporation are its sole liabilities.

• MAM Realty Development Corporation vs. NLRC, 244 SCRA 797 [1995] — Cited for the enumeration of exceptional circumstances warranting solidary liability of directors and officers, including assent to patently unlawful acts, bad faith, or gross negligence.

• Jarcia Machine Shop and Auto Supply, Inc. vs. National Labor Relations Commission, G.R. No. 118045, January 2, 1997 — Cited for the proposition that while the rules of evidence prevailing in courts of law are not controlling in proceedings before the NLRC, the evidence presented must at least have a modicum of admissibility for it to be given some probative value.

• Article 283, Labor Code of the Philippines — The provision governing closure of establishment and reduction of personnel, which permits termination of employment due to retrenchment to prevent losses, subject to the requirement of serving written notice on the worker and the Ministry of Labor and Employment at least one month before the intended date thereof, and the payment of separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher.

• Section 3, Article XIII, Constitution — Cited for the constitutional guarantee of the right of enterprises to reasonable returns on investment and to expansion and growth, which the Court balanced against the social justice provisions favoring labor.

• Article 221, Labor Code of the Philippines — Cited for the rule that administrative and quasi-judicial bodies like the NLRC are not bound by the technical rules of procedure in the adjudication of cases, which the Court clarified should not be construed as a license to disregard fundamental evidentiary rules.

• Section 9(b), Book VI, Rule III, Omnibus Rules Implementing the Labor Code — Cited by the Labor Arbiter for the provision that where termination is due to retrenchment to prevent losses, the employee shall be entitled to termination pay equivalent to at least one-half month pay for every year of service, a fraction of at least six months being considered as one whole year.

Bellosillo, Vitug, and Kapunan, JJ., concurred. Padilla, J., was on leave.