Title
Light Rail Transit Authority vs. Mendoza
Case
G.R. No. 202322
Decision Date
Aug 19, 2015
LRTA, a government corporation, was held solidarity liable with its subsidiary METRO for unpaid separation pay after METRO's operations ceased due to an illegal strike. Labor tribunals had jurisdiction, and claims were timely due to written demands.
separation pay
former employees
solidarily liable
A

Case Summary (G.R. No. 202322)

Factual Background

The LRTA entered into a ten-year operations and management (O & M) agreement with Meralco Transit Organization, Inc., later renamed METRO, initially from June 8, 1984 to June 8, 1994, with renewal and month-to-month extensions thereafter. The O & M agreement provided that LRTA would reimburse METRO for specified “operating expenses,” a defined term that included salaries, wages, fringe benefits, and amounts for top management compensation, and that LRTA would reimburse advances to METRO’s revolving fund. On June 9, 1989, LRTA acquired the bulk of MTOI’s shares such that METRO became a wholly owned subsidiary while retaining separate corporate personality. On July 25, 2000, a rank-and-file strike at METRO paralyzed operations. The LRTA Board adopted Resolution No. 00-44 on July 28, 2000, authorizing a two-month bridging fund from August 1, 2000 and directing the updating of METRO’s Employee Retirement Fund; the O & M agreement was not renewed and METRO ceased operations on September 30, 2000, resulting in the termination of METRO’s workforce, including the respondents. METRO’s board authorized payment of fifty percent of separation pay in April 2001, and respondents received one half of their separation pay in May 2001. Respondents demanded payment of the balance from LRTA; LRTA refused, prompting the filing of a complaint on August 31, 2004 before the labor arbiter.

Trial and Administrative Proceedings Before Labor Fora

Labor Arbiter Arthur L. Amansec, in his August 8, 2005 decision, pierced METRO’s corporate veil and applied the law on labor-only contracting to declare LRTA solidarily liable with METRO for the remaining fifty percent of respondents’ separation pay. The NLRC affirmed the labor arbiter in its December 23, 2008 decision and denied LRTA’s motion for reconsideration in its March 30, 2009 resolution. The NLRC also held that the action had not prescribed. A writ of execution was issued by the labor arbiter on June 3, 2010, and respondents received LRTA’s cash bond released pursuant to that order.

Petition to the Court of Appeals

LRTA sought relief in the Court of Appeals via a petition for certiorari under Rule 65, contending that the NLRC and the labor arbiter acted with grave abuse of discretion by assuming jurisdiction over LRTA, by declaring LRTA an indirect employer with solidary liability, and by failing to sustain prescription. LRTA relied on the Court’s earlier decision in LRTA v. Venus, Jr. to assert that as a government-owned and -controlled corporation with an original charter, employment disputes involving LRTA must proceed before the Civil Service Commission and not the NLRC. LRTA also denied any contractual obligation to pay the remaining separation pay and characterized its financial actions, including Resolution No. 00-44, as mere financial assistance.

Court of Appeals’ Decision

The Court of Appeals affirmed the NLRC’s result but for different reasons. The CA rejected piercing the corporate veil as unjustified because it found no fraud or wrongdoing by LRTA related to the nonpayment of separation pay, distinguishing Venus. The CA also concluded that METRO was not a labor-only contractor, since it had capital, equipment, and unionized employees, and LRTA did not exercise employer prerogatives over METRO’s workforce. The CA nonetheless held that LRTA was contractually bound to fund METRO’s Employee Retirement Fund and therefore liable to satisfy the unpaid separation pay because LRTA routinely reimbursed METRO’s operating expenses under the O & M agreement and because LRTA’s Resolution No. 00-44 and internal memoranda evidenced LRTA’s funding of and obligation to update the retirement fund. The CA also rejected the prescription defense, finding that respondents interrupted prescription by written demands to LRTA and invoking Article 1155 of the Civil Code as applicable to separation pay claims in the absence of a specific Labor Code provision.

Petition for Review to the Supreme Court and Parties’ Contentions

LRTA filed a petition for review on certiorari under Rule 45, renewing its jurisdictional argument based on Article IX-B, Section 2(1) of the 1987 Constitution and the Venus precedent, and maintaining that it had no contractual or statutory liability for the unpaid balance of separation pay. LRTA urged that Resolution No. 00-44 and related acts did not create a legally binding obligation. The respondents opposed the petition and urged affirmation of the CA decision, pointing to the Joint Memorandum of June 6, 1989, LRTA Board Resolution No. 00-44, METRO’s November 17, 1997 memorandum, and the July 12, 2001 letter from METRO’s acting chairman as evidence that LRTA regularly financed and thereby assumed liability for METRO’s retirement fund, which covered severance and resignation pay.

Issues Presented

The case presented whether the labor tribunals had jurisdiction to entertain a money claim against LRTA despite LRTA’s status as a government-owned and -controlled corporation with an original charter; whether LRTA was liable, either contractually or as an indirect employer, for the remaining fifty percent of respondents’ separation pay; and whether respondents’ claim had prescribed.

Supreme Court’s Ruling on Jurisdiction

The Court rejected LRTA’s reliance on LRTA v. Venus, Jr. and held that the jurisdictional challenge was misplaced because the dispute did not arise from employment with LRTA but from a money claim against LRTA based on its conduct of business through METRO. The Court cited Phil. National Bank v. Pabalan for the principle that when the government conducts business through a corporation it divests itself pro hac vice of sovereign character and subjects that corporation to rules governing private entities. The Court found no grave abuse of discretion in the labor tribunals’ assumption of jurisdiction over respondents’ money claim against LRTA.

Supreme Court’s Ruling on Substantive Liability

The Court affirmed the CA and reinstated the labor arbiter’s August 8, 2005 decision. It held that LRTA had incurred an obligation to fund METRO’s Employee Retirement Fund as part of METRO’s reimbursable “operating expenses” under Article 4.05.1 of the O & M agreement, and that LRTA’s Resolution No. 00-44 and contemporaneous communications demonstrated LRTA’s commitment to update the retirement fund to ensure full coverage of retirement and separation benefits. The Court further held in the alternative that LRTA was solidarily liable as an indirect employer under Article 107 and Article 109 of the Labor Code, and under Department Order No. 18-02, s. 2002, Section 19, because LRTA contracted with METRO as principal to an independent contractor and the nonrenewal of the O & M agreement produced the same adverse effect on

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