Title
ABS-CBN Broadcasting Corp. vs. Hilario
Case
G.R. No. 193136
Decision Date
Jul 10, 2019
ABS-CBN and CCI found jointly liable for illegal dismissal after CCI’s closure was deemed a ploy to circumvent labor laws, with DWVEI continuing operations; separation pay awarded.
termination of employees
closure of operations
joint liability

Case Summary (G.R. No. 193136)

Factual Background

ABS-CBN formerly maintained an internal Scenic Department that handled design, construction and provision of props and sets. That function was transferred to Creative Creatures, Inc. (CCI), a corporation formed in 1995 by Edmund Ty together with certain officers and major stockholders of ABS-CBN. CCI provided set and prop services primarily to ABS-CBN. Hilario was hired by CCI as Designer in 1995 and rose to Set Controller with salary P9,973.24 as of October 5, 2003. Banting was engaged by CCI in April 1999 as Metal Craftsman and became Assistant Set Controller with salary P8,820.73 as of October 5, 2003.

Events Leading to Closure and Termination

In June 2003, Edmund Ty decided to retire from CCI and organized a new company, Dream Weaver Visual Exponents, Inc. (DWVEI). CCI's board resolved on July 15, 2003 to shorten its corporate term and cease operations, citing Ty's retirement and the corporation's marginal financial condition. ABS-CBN engaged Ty under a Consultancy Agreement and later engaged DWVEI for set and prop services. CCI served notices that it would cease operations effective October 5, 2003. Hilario received P118,205.87 and Banting received P66,383.54 upon termination; both executed quitclaims in favor of CCI.

Labor Complaint and Allegations

On September 24, 2003 respondents filed a complaint for illegal dismissal, illegal deduction, and nonpayment of meal allowances with the NLRC Arbitration Branch. They alleged that CCI’s purported closure was not bona fide but a scheme to circumvent the Labor Code, that CCI continued operations under the guise of DWVEI, and that ABS-CBN exercised control over CCI’s affairs. Petitioner and CCI contended they were separate corporations, that CCI complied with procedural requirements for closure and paid separation benefits, and that the termination was a legitimate exercise of management prerogative.

Labor Arbiter Decision

The Labor Arbiter issued a decision dated March 1, 2006 finding respondents illegally dismissed. The Arbiter concluded that CCI’s closure was a tactic to circumvent Art. 279, Labor Code, and that ABS-CBN exercised direction, control and management over CCI. The Arbiter ordered CCI and ABS-CBN, jointly and severally, to reinstate respondents to their former or equivalent positions and to pay full backwages from October 2003 until reinstatement, subject to deduction of amounts previously received.

NLRC Ruling

On June 30, 2008 the NLRC affirmed the Labor Arbiter’s decision. The NLRC agreed that CCI’s corporate shell was used to justify dismissal while ABS-CBN continued the same functions, and that CCI and ABS-CBN should be treated as a single entity because petitioner controlled CCI’s affairs. The NLRC directed ABS-CBN to immediately reinstate the complainants and report compliance.

Court of Appeals Disposition

The Court of Appeals rendered a decision dated March 4, 2010 affirming that respondents were illegally dismissed and that ABS-CBN and CCI were jointly and severally liable, but it modified the monetary relief by directing that amounts respondents received by way of quitclaim be deducted from their awards. The CA denied reconsideration by resolution dated July 29, 2010.

Issues Presented to the Supreme Court

Petitioner presented principally three issues: whether there was factual and legal basis to disregard the separate corporate personalities of ABS-CBN and CCI; whether respondents’ termination by reason of CCI’s closure was valid and made in good faith; and whether reinstatement to ABS-CBN was possible given the claimed absence of relevant positions.

Petitioner’s Contentions

ABS-CBN maintained that CCI and ABS-CBN are separate legal entities and that corporate separateness cannot be disregarded merely because shareholders overlapped or because CCI supplied services primarily to petitioner. Petitioner argued that CCI complied with Art. 298 procedural requirements, that separation pay was paid, that the closure was a legitimate business decision exercised in good faith, and that reinstatement was inappropriate because no positions existed at ABS-CBN corresponding to respondents’ roles.

Respondents’ Contentions

Respondents contended that Ty’s resignation and CCI’s closure were feigned to evade labor obligations. They asserted that CCI operated solely for ABS-CBN’s benefit, that petitioner exercised control over CCI, and that CCI continued to perform work for ABS-CBN under DWVEI. Respondents argued that the corporate veil should be pierced because CCI was a mere instrumentality or alter ego of petitioner and that termination was designed to circumvent statutory security of tenure.

Standard of Review and Deference to Factual Findings

The Court reiterated that under Rule 45 only questions of law are ordinarily reviewable and that factual findings of labor tribunals are accorded respect when supported by substantial evidence. The Supreme Court declined to depart from the uniform factual findings of the Labor Arbiter, the NLRC, and the Court of Appeals that respondents were illegally dismissed because those findings were substantially supported by the record.

Legal Basis for Finding Closure Not Bona Fide

The Court applied the test for bona fide cessation under Art. 298, which requires service of written notice to employees and to DOLE at least one month before closure, that the cessation be bona fide rather than a scheme to circumvent labor protections, and that separation pay be paid. While CCI complied with notice and payment, the Court found that CCI failed to prove that the cessation was bona fide. The Court considered circumstantial evidence, including immediate engagement of Ty by ABS-CBN as consultant, hiring of DWVEI for the same functions, the transfer and rehiring of many CCI employees under DWVEI, and certification indicating Ty was treated as Vice-President and Managing Director of petitioner’s Division, CCI, up to October 5, 2003. Those facts supported the conclusion that CCI’s closure was designed to defeat employees’ tenurial rights.

Piercing the Corporate Veil and Joint Liability

The Court discussed the doctrine of piercing the veil of corporate fiction, citing its three recognized applications and relying on the alter ego/instrumentality branch. The Court concluded that CCI was so organized, controlled and conducted as to be an instrumentality of ABS-CBN. The relationship between ABS-CBN and CCI—abolition of petitioner’s internal Scenic Department followed by creation of CCI to perform the same functions, overlapping incorporators and major stockholders, CCI’s dependence on petitioner for business, ABS-CBN’s role in CCI’s closure and engagement of Ty and DWVEI—demonstrated control sufficient to treat the corporations as a single entity. Accordingly, ABS-CBN was held jointly and severally liable with CCI for the illegal dismissal.

Reinstatement versus Separation Pay

Although the labor tribunals ordered reinstatement, the Court modified relief. The Court recognized the general rule that unjustly dism

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