Title
Light Rail Transit Authority vs. Venus Jr.
Case
G.R. No. 163782
Decision Date
Mar 24, 2006
LRTA, a government entity, not liable for METRO’s illegal dismissal of employees; corporate veil upheld, METRO ordered to pay damages.
light rail transit authority
venus jr
metro transit organization

Case Summary (G.R. No. 163782)

Factual Background

LRTA constructed the light rail transit system from Monumento, Kalookan City to Baclaran, Parañaque, Metro Manila. To operate and manage the system, LRTA—after a bidding process—entered into a ten (10)-year Agreement with METRO from June 8, 1984 until June 8, 1994, later renewed beyond its initial term. The Agreement provided that, upon the commencement date, METRO would accept and take over the management, maintenance, and operation of the commissioned and tested portion of the light rail transit system. It also contemplated a management fee paid by LRTA and required METRO to employ necessary officers and employees.

Crucially, the Agreement stated that METRO was free to employ personnel, and that such employees and officers would be METRO’s employees and not LRTA’s employees. METRO would prepare compensation schedules for its personnel in consultation with LRTA and would hold LRTA free and harmless from losses and litigation expenses, except where liability was attributable to defects or deficiencies in the system’s design or equipment.

Pursuant to the Agreement, METRO hired its own employees, including the private respondents. METRO later entered into a collective bargaining agreement with the union PIGLAS-METRO, INC. as the certified exclusive representative of its rank-and-file employees.

On June 9, 1989, LRTA and METRO executed a Deed of Sale under which LRTA purchased METRO’s shares of stock. Despite this acquisition, the Court found that the parties maintained their distinct and separate juridical personalities.

When the initial ten-year Agreement expired on June 8, 1994, LRTA and METRO renewed it, first on a yearly basis and later on a monthly basis. On July 25, 2000, the union filed a Notice of Strike due to a deadlock in collective bargaining negotiations with METRO, and a strike commenced the same day. The strike led to the turning off of power supply switches in various substations and complete paralysis of the light rail transit system’s operations. It also disrupted commuting mobility and prompted governmental action. On July 25, 2000, then Secretary of Labor Bienvenido E. Laguesma issued an assumption of jurisdiction order directing the striking employees to return to work immediately upon receipt and requiring the company to accept them back under the same terms and conditions of employment prevailing prior to the strike.

The Department of Labor and Employment sheriffs reported attempts to personally serve the Order on July 26, 2000, but the union refused to receive it. The sheriffs posted the Order in the system’s stations and terminals and the Order was published in the July 27, 2000 issues of the Philippine Daily Inquirer and the Philippine Star. Despite posting and publication, the union officers and members, including the private respondents, did not return to work. Accordingly, effective July 27, 2000, the private respondents were considered dismissed from employment.

Meanwhile, on July 31, 2000, the management and operation Agreement between LRTA and METRO expired. LRTA’s Board resolved not to renew METRO’s contract and instructed LRTA management to take over operations to avert a mass transportation crisis.

NLRC Proceedings and Initial Rulings

Private respondents Venus, Jr., Santos, Jr., and Roy filed an illegal dismissal complaint with the NLRC on October 10, 2000, impleading both LRTA and METRO. The remaining private respondents filed follow-up complaints on December 1, 2000, and the cases were consolidated. On October 1, 2001, Labor Arbiter Luis D. Flores issued a consolidated judgment in favor of the private respondents. He declared that the complainants were illegally dismissed and ordered reinstatement to their former positions without loss of seniority and other rights. He also ordered LRTA and METRO to jointly and severally pay benefits and full back wages, and to each pay moral damages of P50,000.00, along with attorney’s fees equivalent to ten percent (10%) of the total money judgment.

A complaint initially consolidated involving Bienvenido G. Arpilleda was later dropped due to his failure to appear and submit documents and a position paper.

NLRC Appeal and Dismissal as to LRTA

On appeal, the NLRC reversed the Labor Arbiter on May 29, 2002. It found that the striking workers failed to heed the return-to-work order and thus set aside the labor arbiter’s reinstatement and backwage awards. The NLRC dismissed the suit against LRTA, holding that LRTA was a government-owned and controlled corporation created by Executive Order No. 603 with an original charter and that it had no participation in the termination of the complainants’ employment. It also dismissed the cases for lack of jurisdiction (as to LRTA) and lack of merit (as to METRO).

The NLRC denied the workers’ motion for reconsideration on December 3, 2002, citing no showing of palpable or patent error and the motion’s procedural defect as not under oath.

Court of Appeals Ruling

On certiorari, the Court of Appeals reversed the NLRC and reinstated the Labor Arbiter’s decision. The appellate court held the dismissal illegal and pierced the veil of separate corporate personality, treating LRTA and METRO as jointly liable for back wages.

The Court of Appeals’ ruling prompted the consolidated petitions for review on certiorari filed by both LRTA and METRO.

The Parties’ Contentions Before the Supreme Court

LRTA argued that it had no employer-employee relationship with the private respondents because the workers were hired by METRO pursuant to the management and operation Agreement. It emphasized that the private respondents recognized METRO as their employer through union bargaining with METRO, and it argued that piercing the corporate veil was unwarranted absent competent and convincing evidence of fraud or unlawful conduct attributable to METRO or to LRTA.

LRTA further maintained that, as a government-owned and controlled corporation with an original charter, it was under the exclusive jurisdiction of the Civil Service Commission, not the NLRC.

The private respondents countered that LRTA owned METRO and strictly controlled METRO’s operations and administration. They insisted that METRO was an adjunct, conduit, and alter ego of LRTA, and they sought the piercing of corporate veils to satisfy their money claims.

Legal Basis and Reasoning of the Supreme Court

The Court agreed with LRTA’s central premise on jurisdiction and employment coverage. The Court relied on Section 2 (1), Article IX B, 1987 Constitution, which provides that the civil service embraces all branches and instrumentalities of the Government, including government-owned or controlled corporations with original charters. The Court distinguished corporations created by special law (original charters) from those incorporated under the general corporation law. It cited Philippine National Oil Company Energy Development Corporation v. Hon. Leogrado to support the test that, under the present state of the law, the manner of a government corporation’s creation determines whether it is subject to the Civil Service Law.

Applying the test, the Court held that LRTA’s employment relationships were governed by civil service rules because LRTA had an original charter under Executive Order No. 603, Series of 1980, as amended. By contrast, METRO, though later acquired by LRTA, had been originally organized under the Corporation Code and thus had no original charter. Consequently, labor disputes arising from METRO employees fell within Department of Labor and Employment jurisdiction and were governed by the Labor Code, not civil service rules.

Because the workers belonged to METRO’s labor regime, the Court held that the private respondents could not have “the best of two worlds”—that is, they could not be treated as LRTA government employees in order to avoid legal consequences while claiming the protections and right to strike accorded to private employees under the Labor Code.

The Court also examined and approved the reasoning that METRO employees were not covered by the prohibition against strikes applicable to civil service employees. It treated as persuasive Department of Justice Opinion No. 108, Series of 1999, which concluded that METRO employees were not embraced by the civil service prohibition because they were not civil service employees, and thus they remained covered by the Labor Code, including the right to strike. The Court additionally noted that the Department of Budget and Management had observed, in a February 22, 1999 letter, that METRO employees were not entitled to presidential government amelioration for government employees because METRO could not be considered a GOCC under Section 3 (b) of E.O. 518.

On the doctrine of piercing the corporate veil, the Court held that the evidence did not satisfy the requirement that wrongdoing must be clearly and convincingly established. It invoked Del Rosario v. NLRC for the principle that juridical personality is separate and distinct, and that it may be disregarded only when the corporate personality is used to defeat public convenience, justify wrong, protect fraud, or defend crime. It further stressed that the doctrine could not be presumed and cannot apply absent the requisite showing of wrongdoing and causal link.

The Court found no badges of fraud or wrongdoing justifying disregard of METRO’s separate personality. It emphasized that METRO had been organized and registered with the Securities and Exchange Commission long before the labor dispute. The Court treated the continued operation of a ten-year Agreement by distinct entities, the later extension of that Agreement, and the recognition of METRO’s separate identity when it entered a collective bargaining agreement in 1995, as consistent with continued separateness. It also noted that the labor dispute arose only in 2000, after collective bargaining deadlock, and that this fact alone was insufficient to pierce METRO’s veil and impose LRTA liabil

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