Facts:

The case involves a petition for review on certiorari filed by Rommel M. Zambrano and 40 other petitioners against the Philippine Carpet Manufacturing Corporation (Phil Carpet), David E. T. Lim, and Evelyn Lim Forbes. The events leading to the case began on January 3, 2011, when the petitioners, who were employees of Phil Carpet, received notifications regarding their termination effective February 3, 2011, citing cessation of operations due to serious business losses. The petitioners contended that their dismissal was unjust and violated due process, alleging that the closure was merely a pretext to transfer operations to a subsidiary, Pacific Carpet Manufacturing Corporation. They claimed that job orders from regular clients were shifted to Pacific Carpet and that machinery was moved from Phil Carpet to Pacific Carpet between October and November 2011. In defense, Phil Carpet argued that it had suffered continuous financial losses, as evidenced by its audited financial stat...

Facts:

Background of the Case

The petitioners were employees of Philippine Carpet Manufacturing Corporation (Phil Carpet). On January 3, 2011, they were notified of the termination of their employment effective February 3, 2011, due to the cessation of operations caused by serious business losses. The petitioners claimed that the closure was a pretense to transfer operations to Pacific Carpet Manufacturing Corporation (Pacific Carpet), a wholly owned subsidiary of Phil Carpet. They alleged that job orders from Phil Carpet’s regular clients were transferred to Pacific Carpet, and several machines were moved from Phil Carpet to Pacific Carpet. They also argued that their dismissal constituted unfair labor practice, as it involved the mass dismissal of union officers and members of the Philippine Carpet Manufacturing Employees Association (PHILCEA).

Phil Carpet’s Defense

Phil Carpet countered that the closure was due to a steady decline in demand for its products, global recession, stiffer competition, and changing market conditions. Audited financial statements showed significant losses from 2006 to 2010, with unaudited losses amounting to P26.59M as of October 2010. The company implemented cost-cutting measures, including voluntary redundancy and early retirement programs, before deciding to cease operations. Phil Carpet complied with the Labor Code’s requirements for closure, serving written notices to the Department of Labor and Employment (DOLE) and the petitioners one month before the closure. The petitioners were paid separation benefits and executed Release and Quitclaim documents.

Labor Arbiter (LA) Ruling

The LA dismissed the complaints for illegal dismissal and unfair labor practice, ruling that the closure was due to serious business losses and was conducted in good faith. The LA noted that Phil Carpet complied with procedural requirements, and the petitioners voluntarily accepted their separation pay and executed quitclaims.

NLRC Ruling

The NLRC affirmed the LA’s decision, finding that Phil Carpet’s closure was due to continuous financial losses and that the company complied with legal requirements.

Court of Appeals (CA) Ruling

The CA upheld the NLRC’s decision, ruling that the closure was due to economic necessity and not in bad faith. The CA found no evidence that Phil Carpet’s clients or machines were transferred to Pacific Carpet. The CA also ruled that the dismissal of union members did not constitute unfair labor practice, as the closure was justified by business losses.

Issue:

• (Unlock)

Ruling:

• (Unlock)

Ratio:

1. Authorized Cause for Dismissal: Closure of business due to serious financial losses is an authorized cause for termination under Article 298 of the Labor Code. Phil Carpet provided substantial evidence of its financial losses and complied with the procedural requirements, including serving notices and paying separation benefits.
2. Unfair Labor Practice: To constitute unfair labor practice, there must be evidence that the employer’s actions were motivated by anti-union animus. The petitioners failed to prove that Phil Carpet’s closure was intended to undermine their union activities.
3. Separate Corporate Personality: The doctrine of piercing the corporate veil applies only in cases of fraud, illegality, or inequity. The petitioners failed to show that Pacific Carpet was a mere alter ego of Phil Carpet or that the corporate structure was used to evade obligations.
4. Validity of Quitclaims: Quitclaims are valid if executed voluntarily, with full understanding, and for reasonable consideration. The petitioners received their separation pay and signed the quitclaims voluntarily, making them binding.