Appeal Bonds and Insolvency Proceedings

In March 2004, Miguel commenced his employment with Karj Global Marketing Network, Inc. (Karj Global) as Assistant General Manager. He alleged that Karj Global agreed to grant him 14th month bonus, a vehicle, and vehicle maintenance benefits.

On July 6, 2006, Miguel instituted a complaint before the Office of the Labor Arbiter against Karj Global for non-payment of 14th month pay, refund of his expenditures for vehicle maintenance, damages and attorney’s fees.

Karj Global denied Miguel’s entitlement to said claims. With regard to the claim of 14th month pay, Karj Global asserted that the same was discretionary in nature and that such gratuity was never part of the regular compensation of its employees.

On October 16, 2006, the Office of the Labor Arbiter ruled in favor of Miguel and ordered not only the payment of 14th month pay benefit, but also the refund of car maintenance costs. Karj Global appealed the said decision to the National Labor Relations Commission.

Record showed that prior to the issuance of the Office of the Labor Arbiter’s decision, certain creditors instituted before the Regional Trial Court of Parañaque City a Petition for Involuntary Insolvency against Karj Global. On October 2, 2006, the Regional Trial Court issued an Order enjoining Karj Global from disposing its property and from making any payments outside of necessary or legitimate expenses of its business or industry.

Karj Global filed before the National Labor Relations Commission its Motion to Suspend Proceedings dated November 2, 2006 and alleged therein its receipt of the Office of the Labor Arbiter’s Decision on October 27, 2006, as well as its receipt the Order of the Regional Trial Court on October 9, 2006. Karj Global further stated in the said motion that it informed the Regional Trial Court of the pendency of Miguel’s labor case.

Meanwhile, on November 28, 2008, the National Labor Relations Commission dismissed Karj Global’s appeal for non-perfection as the same was filed without the required bond.

Karj Global filed a petition for certiorari with the Court of Appeals, which dismissed the same and affirmed the decision of the National Labor Relations Commission.

Was the strict adherence to the appeal bond posting requirement correct?

The Supreme Court ruled that the appeal bond requirement should have been liberally applied in the present case and that the National Labor Relations Commission, which was mandated to act with justice, reason and equity, should have allowed the appeal and ruled on the merits considering the circumstances of the case. Specifically, the Court found that the employees of Karj Global (including Miguel) had many layers of protection under law, despite Karj Globa’s insolvency proceedings. This is because the rule on a requirement of an appeal bond cannot operate in a vacuum. Said the Court: “[W]hen the law does not clearly provide a rule or norm for the tribunal to follow in deciding a question submitted, but leaves to the tribunal the discretion to determine the case in one way or another, the judge must decide the question in conformity with justice, reason and equity, in view of the circumstances of the case.”

The Court started by discussing Article 223¹Art. 223. Appeal. — Decisions, awards, or orders of the Labor Arbiter are final and executory unless appealed to the Commission by any or both parties within ten (10) calendar days from receipt of such decisions, awards, or orders. x x x In case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the Commission in the amount equivalent to the monetary award in the judgment appealed from. of the Labor Code of the Philippines which requires the posting of a cash or surety bond when the judgment appealed from involves a monetary award. The Court reiterated prevailing jurisprudence²Viron Garments Manufacturing, Co., Inc. v. National Labor Relations Commission, G.R. No. 97357, March 18, 1992. in that the posting of the bond is an indispensable requisite for the perfection of an appeal by the employer. The mandatory nature of the bond is clearly limned in the provision that an appeal by the employer may be perfected only upon the posting of a cash or surety bond. The Court stressed that the word ‘only’ makes it perfectly clear, that the lawmakers intended the posting of a cash or surety bond by the employer to be the exclusive means by which an employer’s appeal may be perfected.

However, the Court also mentioned the following exceptional circumstances under jurisprudence:³Lepanto Consolidated Mining Corp. v. Icao, G.R. No. 196047, January 15, 2014.

• The Court excused the failure of an appellant to post a bond in view of its counsel’s reliance on the notice of the decision in the case which stated the requirements of an appeal without any mention of the bond requirement. The Court found that the said counsel, as well as the opposing party, apparently had no knowledge of the amendments caused by Republic Act No. 6715 on the bond requirement, including the issuance of the NLRC Interim Rules requiring the posting of a bond on appeal.⁴Your Bus Lines v. NLRC, G.R. No. 93381, September 28, 1990.
• An appellant was likewise excused from the requirement, when its failure to post a bond was partly caused by the Office of the Labor Arbiter’s failure to state the exact amount of monetary award due, which would have been the basis of the amount of the bond to be posted.⁵Blancaflor v. National Labor Relations Commission, G.R. No. 101013, February 2, 1993.
• An appeal was given due course despite the failure of the appellant to post a bond, on account of its insolvency and poverty.⁶Cabalan Pastulan Negrito Labor Association v. National Labor Relations Commission, G.R. No. 106108, February 23, 1995.
• Finally, the appellant was allowed to post a property bond in lieu of a cash or surety bond. The Court found that the assailed judgment involved more than P17 million and its execution could adversely affect the economic survival of the appellant, which was a medical center.⁷ UERM-Memorial Medical Center v. National Labor Relations Commission, G.R. No. 110419, [March 3, 1997.

The Court stated that in determining whether to allow a liberal application of the rule on bonds, it is crucial to understand whether employees stand to lose such security provided by the appeal bond, which ensures that when employees prevail, they will receive the money judgment in their favor.

In the present case, the Court deemed the existence of the insolvency proceedings as an exceptional circumstance that warranted the liberal application of the rules requiring an appeal bond. Said the Court: The failure to file an appeal bond did not contradict the need to ensure that the employee, if his claim is deemed valid, will receive the money judgment.

At this point, the Court recognized the seeming absence of a rule or norm to follow on the requirement of an appeal bond when the appealing employer is subject of involuntary liquidation proceedings.

The Court noted that under Article 217⁸Art. 217. Jurisdiction of the Labor Arbiters and the Commission. — (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: xxx xxx xxx (6) Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. (Emphasis supplied and underscoring supplied) of the Labor Code of the Philippines, money claims arising from an employer-employee relationship may only be filed and ruled upon by the Office of the Labor Arbiter. However, the Court also noted that when an employer is undergoing insolvency proceedings, Article 217 of the Labor Code of the Philippines has to be read together with Section 60⁹SECTION 60. No creditor, proving his debt or claim, shall be allowed to maintain any suit therefor against the debtor, but shall be deemed to have waived all right of action and suit against him, and all proceedings already commenced, or any unsatisfied judgment already obtained thereon, shall be deemed to be discharged and surrendered thereby; and after the debtor’s discharge, upon proper application and proof to the court having jurisdiction, all such proceedings shall be dismissed, and such unsatisfied judgments satisfied of record: Provided, That no valid lien existing in good faith thereunder shall be thereby affected. A creditor proving his debt or claim shall not be held to have waived his right of action or suit against the debtor when a discharge has have been refused or the proceedings have been determined without a discharge. No creditor whose debt is provable under this Act shall be allowed, after the commencement of proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor until the question of the debtor’s discharge shall have been determined, and any such suit or proceeding shall, upon the application of the debtor or of any creditor, or the assignee, be stayed to await the determination of the court on the question of discharge: Provided, That if the amount due the creditor is in dispute, the suit, by leave of the court in insolvency, may proceed to judgment for the purpose of ascertaining the amount due, which amount, when adjudged, may be allowed in the insolvency proceedings, but execution shall be stayed as aforesaid. of the Insolvency Law,¹⁰Act No. 1956, May 20, 1909. The Financial Rehabilitation and Insolvency Act (FRIA) of 2010, or Republic Act No. 10142, was signed into law on July 18, 2010. or the law in effect when the National Labor Relations Commission dismissed the appeal on November 28, 2008, which states that a creditor may be allowed to proceed with the suit to ascertain the amount due to it but the execution of which shall be stayed.

The Court discussed that during the pendency of the insolvency proceedings, employees are afforded a measure of protection by having their claim considered as a contingent claim before the insolvent court following Section 55¹¹ SECTION 55. In all cases of contingent debts and contingent liabilities, contracted by the debtor, and not herein otherwise provided for, the creditor may make claim therefor and have his claim allowed, with the right to share in the dividends, if the contingency shall happen before the order of the final dividend; or he may, at any time, apply to the court to have the present value of the debt or liability ascertained and liquidated, which shall be done in such manner as the court shall order, and it shall be allowed for the amount so ascertained. of the Insolvency Act. The Court stated that like any other contingent claim, employees may prosecute their case before the labor tribunals, and exhaust other remedies, until he or she obtains a final and executory judgment. Assuming the employees obtain a favorable money judgment, the execution will be stayed following Section 60 of the Insolvency Act because the insolvency proceedings is where all creditors of the employer may establish their claims.

The Court added that assuming the insolvent corporation undergoes liquidation, the measure of protection given to employees is stated in Article 110¹²Art. 110. Worker Preference in Case of Bankruptcy. — In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid. of the Labor Code of the Philippines, which prescribes not only the preference for unpaid wages and monetary claims even before the payment of claims of the government and other creditors, but also the only proper venue for the enforcement of such preferential right.¹³In Development Bank of the Phils. v. Secretary of Labor, G.R. No. 79351, November 28, 1989, the Court ruled: In this jurisdiction, bankruptcy, insolvency and general judicial liquidation proceedings provide the only proper venue for the enforcement of a creditor’s preferential right such as that established in Article 110 of the Labor Code, for these are in rem proceedings binding against the whole world where all persons having any interest in the assets of the debtor are given the opportunity to establish their respective credits. In other words, what Article 110 means in the context of an insolvent employer is “that during bankruptcy, insolvency or liquidation proceedings involving the existing properties of the employer, the employees have the advantage of having their unpaid wages satisfied ahead of certain claims which may be proved therein.”

In sum, the Court ruled that employees of an employer who is undergoing insolvency proceedings has many layers of protection starting from being allowed to prosecute his claim, registering a contingent claim before the insolvency court, and finally, enjoying a preference in case the assets of the corporation are ordered liquidated to pay for its debts.

Here, the Court found that Karj Global informed the National Labor Relations Commission and the Regional Trial Court of the pendency of the insolvency proceedings and of the labor case, respectively. The Court also noted that even as Karj Global wanted a suspension of the proceedings in the labor case, it still filed a Notice of Appeal and Memorandum of Appeal Ad Cautelam. For the Court, the National Labor Relations Commission erred in dismissing the appeal outright especially when the foregoing circumstances reveal that the law itself provides many measures of protection for the employee, such that an appeal before the Commission may be allowed to proceed despite the lack of an appeal bond.

Further reading:

• Karj Global Marketing Network, Inc. v. Mara, G.R. No. 190654, July 28, 2020.