Paulino Ungos III

Lawyer | Law Professor | Author

Tag: 2020-12

  • The Second Company’s Deceitful Purpose

    The Supreme Court reiterated the doctrine of piercing the corporate veil in that it applies in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

    It is the act of hiding behind the separate and distinct personalities of juridical entities to perpetuate fraud, commit illegal acts and evade one’s obligations, that the equitable piercing doctrine was formulated to address and prevent. 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. However, [an employer’s] attempt to isolate [itself] from and hide behind the supposed separate and distinct personality of [a different company] so as to evade [its] liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.1De Castro v. Court of Appeals, G.R. No. 204261, October 5, 2016, 796 PHIL 681-713.

    In Nextphase International, Inc. v. National Labor Relations Commission — Third Division,2G.R. No. 249046, December 9, 2020., Nextphase International, Inc. (NPI) was found to have used the corporate veil to perpetrate a fraud against certain employees. Thus:

    In this instance, petitioner denies committing fraud to defeat legal processes and deny private respondents of what is legally theirs, alleging merely that the evidence adduced by the latter is not sufficient to determine fraud or misuse of corporate fiction. However, it must be remembered that allegation is not equivalent to proof and, as such, the party who asserts a particular fact or affirmative defense is duty-bound to support the same with the requisite quantum of evidence.

    Here, petitioner miserably failed to support its denial of the commission of fraud to evade liability to private respondents or of the fact that it created NGII at around the same time as the conclusion of the case before the CA where being made to pay for P2,735,722.82 was likely. The deceitful purpose for which the second company was created was made clear by the fact that the sheriff was barred from serving the writ of execution to petitioner because its official address was suddenly under a new management whereas the banks to which he had sent notices of garnishment had all but refused. If the two companies were, indeed, separate and distinct from one another, the execution of the judgment would not have encountered a hitch, which it did. Thankfully, the private respondents inquired into the problem that led to the discovery of the surreptitious change in name cum creation of NGII for the purpose of thwarting the enforcement of the judgment award.

    In view thereof, there is no doubt that petitioner’s attempt to hide behind a new identity constitutes fraud within the meaning of the law. Fraud in this context proceeds from the intentional deception practiced by means of misrepresentation or concealment of a material fact. Petitioner did it by cloaking itself with a new legal personality in the hope that by hiding behind the legal fiction it could evade existing obligations and defeat the rights of the claimants to which it was held liable.

    As last ditch effort, petitioner contends that it has a different purpose than that of NGII’s. It claims that its main objective is to engage in the business of trading goods such as but not limited to novelty items on wholesale or retail basis whereas NGII is not. However, a reading of its petition yields to the fact that its nature of business is essentially the same as NGII’s. “[T]o engage in, conduct and carry on business of manufacturing, importing, exporting, marketing at retail/wholesale” is practically just a stretched-out itemization of the word “trading.” The identity of each of the companies’ business model (apart from their corporate names, address, contact numbers and website as well as directors, officers and shareholders) is rendered even more plainly and unambiguously by the subject of their enterprise which is plastic.

    Further reading:

    • Nextphase International, Inc. v. National Labor Relations Commission — Third Division, G.R. No. 249046, December 9, 2020.

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  • The Employee Rejected My Offer of Reinstatement

    On September 1, 2002, the employer hospital hired Antonina as a staff midwife. During her employment, the employer hospital also allowed her to study nursing simultaneously.

    Antonina alleged that on June 23, 2007, she requested permission to go on leave without pay from June 29, 2007 to September 15, 2007 as she needed to work as an affiliate, in compliance with a school requirement. The employer hospital approved the request on the same day and she was also included in the Schedule of Duty for the period September 16 to 30, 2007.

    Antonina stated that on September 19, 2007, the president of the employer hospital berated her for having been away from work for a long time. The next day, a supervisor relayed to Antonina the president’s instructions for her not to report for work anymore.

    Antonina thus filed a complaint against the employer hospital for illegal dismissal, with a prayer for payment of backwages and separation pay.

    The employer hospital denied dismissing Antonina. It claimed that the latter simply failed to report for work after June 28, 2007 for unspecified reasons.

    The Office of the Labor Arbiter ruled that Antonina was illegally dismissed from her job based on the following findings:

    • Antonina’s leave of absence was supported by a leave form and approval by the employer hospital.
    • Antonina was also found to have reported for work after September 15, 2007 and was included in the Schedule of Duty from September 16 to 30, 2007.
    • Antonina’s assertion that she was ordered not to report for work was credible.
    • Antonina filed her complaint for illegal dismissal within a reasonable period inconsistent with the employer hospital’s claim of abandonment.
    • Finally, Antonina was not accorded procedural due process in her dismissal from employment.

    The Office of the Labor Arbiter awarded Antonina full backwages, as well as separation pay, in lieu of reinstatement, because of strained relations between Antonina and the employer hospital.

    The National Labor Relations Commission affirmed the ruling of the Office of the Labor Arbiter.

    However, the Commission considered Antonina’s rejection of an alleged offer of reinstatement by the employer hospital during a hearing held on January 16, 2008. Thus, the Commission modified the computation of her backwages and separation pay by limiting it to the period of September 19, 2007 until January 16, 2008.

    The Court of Appeals reinstated the Decision of the Office of the Labor Arbiter. It found that the employer hospital’s offer of reinstatement was not supported by evidence and thus should not have been automatically factored in by the National Labor Relations Commission as a basis for modifying the reckoning point of the awards of backwages and separation pay.

    The Court of Appeals clarified that even if the alleged offer was made, the award of backwages and separation pay should be computed from the time Antonina’s compensation was withheld from her until the time of her actual reinstatement, and not only up to the time the offer of reinstatement was made, in accordance with Article 294 of the Labor Code of the Philippines. According to the Court of Appeals, a mere order for reinstatement issued by the Office of the Labor Arbiter is different from the actual restoration of an employee to his or her previous position.

    The Court of Appeals stated that in case of reinstatement, backwages and other monetary awards shall continue beyond the issuance of the Office of the Labor Arbiter’s ruling until such time the said reinstatement is actually complied with.

    The Court of Appeals further stated that if reinstatement is no longer feasible, backwages and separation pay must be computed up to the finality of the decision. Until actual receipt by the employee of the award of separation pay, the employer-employee relationship subsists and entitles the illegally dismissed employee to an award of backwages, and other benefits from the time of his or her actual dismissal until finality of the decision of the Office of the Labor Arbiter.

    The employer hospital elevated its case to the Supreme Court.

    How should the awards of Antonina be computed?

    The Supreme Court reiterated the settled rule that “[t]he twin reliefs that should be given to an illegally dismissed employee are full backwages and reinstatement. Backwages restore the lost income of an employee and is computed from the time compensation was withheld up to actual reinstatement. Anent reinstatement, only when it is not viable is separation pay given.”1Peak Ventures Corp. v. Heirs of Villareal, G.R. No. 184618, November 19, 2014.

    The Supreme Court then mentioned Session Delights Ice Cream and Fast Foods v. Court of Appeals,2G.R. No. 172149, February 8, 2010. where it held that a decision in a case involving illegal dismissal consists essentially of two components:

    The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the finding of the illegality of the dismissal, as well as the awards of separation pay, in lieu of reinstatement, and backwages.

    The second part is the computation of the awards made.

    In the present case, the Supreme Court recognized that the illegality of Antonina’s dismissal from employment had already been settled in a ruling of the Court of Appeals in a separate case. Antonina was declared entitled to the reliefs of backwages and separation pay.

    Thus, the Supreme Court focused on the issue on the computation of Antonina’s backwages and separation pay.

    In this regard, the Court referred to Bani Rural Bank, Inc. v. De Guzman3Bani Rural Bank, Inc. v. De Guzman, G.R. No. 170904, November 13, 2013. in explaining the basis for the computation of backwages and separation pay. Said the Court:

    The computation of backwages depends on the final awards adjudged as a consequence of illegal dismissal, in that:

    First, when reinstatement is ordered, the general concept under Article [294] of the Labor Code, as amended, computes the backwages from the time of dismissal until the employee’s reinstatement. The computation of backwages (and similar benefits considered part of the backwages) can even continue beyond the decision of the [Office of the Labor Arbiter] or [National Labor Relations Commission] and ends only when the employee is actually reinstated.

    Second, when separation pay is ordered in lieu of reinstatement (in the event that this aspect of the case is disputed) or reinstatement is waived by the employee (in the event that the payment of separation pay, in lieu, is not disputed), backwages is computed from the time of dismissal until the finality of the decision ordering separation pay.

    Third, when separation pay is ordered after the finality of the decision ordering the reinstatement by reason of a supervening event that makes the award of reinstatement no longer possible, backwages is computed from the time of dismissal until the finality of the decision ordering separation pay.

    The Court said that the above computation of backwages, when separation pay is ordered, has been its consistent ruling.

    According to the Court, the finality of the decision becomes the reckoning point because in allowing separation pay, the final decision effectively declares that the employment relationship ended so that backwages and separation pay are to be computed up to that point.

    The Court determined that the second scenario squarely applies in the present case since the order of separation pay was decreed in lieu of reinstatement.

    Hence, the Court said, the employer-employee relationship of the employer hospital and Antonina would only be completely terminated upon the finality of the decision which ordered the payment of backwages and separation pay. It follows that the computation of Antonina’s backwages must be from the time of her illegal dismissal from employment on September 19, 2007 until the finality of the decision ordering the payment thereof. As for her separation pay, it should be computed at one month pay for every year of service reckoned from September 2, 2002 until the finality of the decision in her favor.

    The Court affirmed the ruling of the Court of Appeals which reinstated the Decision of the Office of the Labor Arbiter.

    Further reading:

    • Angono Medics Hospital, Inc. v. Agabin, G.R. No. 202542, December 9, 2020.

  • A Mere Finding that the Illness is Not Work-Related is Not Automatically a Valid Medical Assessment

    In Starocean Manning Philippines, Inc. v. Saturnino,1G.R. No. 252659, December 2, 2020. the Supreme Court stressed that sufficient basis must support the assessment of the company-designated physician:

    Regardless of who the doctor is and his or her relation to the parties, the overriding consideration should be that the medical conclusions are based on (a) the symptoms and findings collated with medically acceptable diagnostic tools and methods, (b) reasonable professional inferences anchored on prevailing scientific findings expected to be known to the physician given his or her level of expertise, and (c) the submitted medical findings or synopsis, supported by plain English annotations that will allow the Labor Arbiter and the National Labor Relations Commission to make the proper evaluation.2Orient Hope Agencies, Inc. v. Jara, G.R. No. 204307, June 6, 2018.

    If the company-designated physician failed to provide a final and definite medical assessment within the required periods, the seafarer’s condition shall be, by operation of law, characterized as total and permanent.3Ampo-on v. Reinier Pacific International Shipping, Inc., G.R. No. 240614, June 10, 2019.

    Here, the employer failed to adduce evidence supporting the assessment that the seafarer’s illness was not work-related. For the Court, such unsupported finding of non-work-relatedness is an invalid medical assessment.

    The seafarer was accordingly ruled to be entitled to total and permanent disability benefits by operation of law. The Court further applied Section 20(A)(7) of the 2010 POEA-SEC, which requires that such benefits be separate and distinct from, and be in addition to whatever benefits which the seafarer is entitled to under Philippine laws such as from the Social Security System, Overseas Workers Welfare Administration, Employees’ Compensation Commission, Philippine Health Insurance Corporation, and Home Development Mutual Fund.

    Further reading:

    • Starocean Manning Philippines, Inc. v. Saturnino, G.R. No. 252659, December 2, 2020.

  • Get Out!

    Gil was hired as a booking salesman for Household Goods Patrons, Inc. (Household Goods) in July 2007. His duties and responsibilities included taking customer orders, collecting payments, and inspecting equipment.

    From May 2012 to August 2013, Gil faced several disciplinary proceedings due to unaccounted amounts, low sales outputs, unremitted collections, poor performance ratings for failing to meet sales targets, and late remittance of sales proceeds.

    Gil stated that on August 29, 2013, a Household Goods officer directed him to report to her office. Gil stated that he was told to resign because he was responsible for the company’s poor performance. Gil denied the accusation, claiming that he had previously been named Salesman of the Year. This enraged the officer of Household Goods, who ordered Gil to leave her office.

    Gil went on to say that the following day, an HR Supervisor of Household Goods asked for his resignation letter and presented him with a calculation of his final pay. Gil stated that, while he objected to the request, his efforts were futile, and he was ordered to surrender all documents and property.

    Household Goods, on the other hand, asserted that Gil was not fired. According to Household Goods, its officer did speak with Gil about his poor performance and unremitted collections, which it viewed as instances of theft and thus valid grounds for his immediate termination. Household Goods claimed to have taken into account Gil’s previous good sales performance as well as the stigma of being fired from his job. As a result, it offered Gil the option of simply resigning and not filing a criminal charge against him for the unremitted amounts. Gil never returned to work after this conversation, according to Household Goods.

    Was Gil illegally dismissed from employment?

    The Supreme Court ruled in the negative. According to the Court, there was no proof that Gil was dismissed from employment.

    The Court reiterated the settled rule that in illegal dismissal cases, before the employer must bear the burden of proving that the dismissal was legal, the employee must first establish by substantial evidence the fact of his dismissal from service. If there is no dismissal, then there can be no question as to its legality or illegality.1Rodriguez v. Sintron Systems, Inc., G.R. No. 240254, July 24, 2019

    The Court also stated that since an allegation is not evidence, it is elementary that a party alleging a critical fact must support his allegation with substantial evidence. Bare allegations of dismissal, when uncorroborated by the evidence on record, cannot be given credence. Moreover, the evidence to prove the fact of dismissal must be clear, positive and convincing.

    In the present case, the Court found that other than his allegation, Gil failed to present any proof that he was dismissed from employment. He failed to present any proof of dismissal or that he was prohibited from returning to work.

    The Court also found that, on the other hand, Household Goods was able to show that Gil was not dismissed from work. According to the Court, with his poor performance, Gil was only given the option to resign instead of being dismissed.

    The Court recognized the fact that giving such an option may be done at the discretion of the employer. According to the Court, a decision to give a graceful exit to an employee rather than to file an action for redress is perfectly within the discretion of an employer. It is not uncommon that an employee is permitted to resign to save face after the exposure of his/her malfeasance.

    In the present case, the Court found that Household Goods’ act of providing Gil the option to gracefully exit considering his prior good sales performance and out of compassion did not constitute dismissal, legal or illegal. The Court added that although Gil did not resign and take the separation pay offered to him, neither did Household Goods initiate disciplinary proceedings to terminate his employment.

    Could Gil be directed to report back to work?

    The Court discussed that generally, when there is no dismissal, the employee should go back to his work and the employer must then accept him because the employment relationship between them was never actually severed.

    Here, considering that Household Goods had from the outset offered to pay separation pay to Gil, and which even Gil himself did not dispute, and that more than seven years had passed since Gil reported for work on September 1, 2013, the Court deemed it just to award separation pay (equivalent to one month salary for every year of service, computed up to the time he stopped working, or until September 1, 2013) in lieu of the directive for him to return to work and for Household Goods to accept him.

    Further reading:

    • Jarabelo v. Household Goods Patrons, Inc., G.R. No. 223163, December 2, 2020.