Manlimos vs. National Labor Relations Commission

Factual Background: Change of Ownership and the Release and Waiver

The petitioners had been hired as patchers, taper-graders, and receivers-dryers. On 1 September 1991, a new owner/management group headed by Alfredo Roxas acquired complete ownership of the corporation. The petitioners were advised of the change in ownership but continued to work for the new owner. The petitioners were considered terminated, with their conformity, only as of December 1991, when they received their separation pay, 13th month pay, and other benefits computed as of that month. On 17 December 1991, each petitioner executed a Release and Waiver, acknowledged before Atty. Nolasco Discipulo, Hearing Officer of the Butuan City District Office of the Department of Labor and Employment (DOLE). Subsequently, on 27 December 1991, the new owner published a notice for the hiring of workers, specifying which of the separated employees could be accepted on a probationary basis. The petitioners applied for employment.

Reemployment on Probation and Subsequent Separation

Except for Rosario Cuarto, the petitioners were hired on probationary basis for six months as patchers or tapers, compensated on piece-rate or task basis. For alleged absence without leave, Perla Cumpay and Virginia Etic were considered to have abandoned their work as of 4 May 1992. The rest were dismissed on 13 June 1992 for allegedly committing acts prejudicial to the new management’s interest, specifically by including unrepaired veneers in reported productions and untaped corestock or whole sheets in supposed taped veneers/corestock. On appeal, the effectivity of the termination was deferred to 20 June 1992.

NLRC Complaints and Consolidation

Petitioners Ronald Booc, Jaime Timbal, German Gista, Federico Amper, Francisco Evale, and Renante Yacapin filed an NLRC complaint (NLRC-SRAB 10-07-00104-92) for non-payment of wages and related monetary claims, reinstatement with back wages, illegal termination, and damages. A second group—Ronald Manlimos, Froilan Pagalan, Merlita Duhay Lungsod, Elizabeth Andagan, Doris Serdan, Leonora Bibiano, Perla Cumpay, Virginia Etic, Remegia Noel, and Rosario Cuarto—filed another complaint (NLRC Case No. SRAB-10-08-00124-92) for illegal termination, reinstatement with back wages, non-payment and underpayment of wages, non-payment of incentive leave pay, overtime pay, 13th month pay, damages, and related claims. The complaints were later amended and consolidated. The private respondent answered the amended complaints and the parties submitted position papers.

Labor Arbiter’s Decision (30 April 1993)

Labor Arbiter Marissa Macaraig-Guillen ruled for the petitioners and declared their dismissals invalid and illegal. She ordered reinstatement without loss of seniority rights and privileges and payment of back wages, 13th month pay, service incentive leave pay, and attorney’s fees, while dismissing all other claims for lack of merit. The Labor Arbiter reasoned that the transfer of ownership partook of a cessation of business operations not due to business reverses under Article 283 of the Labor Code, drawing on Mobil Employees Association vs. National Labor Relations Commission. She held that the first and third requisites were present—written notice and payment of termination pay—and that the petitioners had freely and voluntarily signed the Release and Waiver. However, she found no cessation of operations because, in her view, there was no gap between the former management’s turnover and the new management’s takeover, and the corporation had not actually closed or stopped operations. She further concluded that upon resumption in January 1992, the petitioners re-entered employment as regular employees for work necessary and desirable to the company, and that the alleged irregularities were not proven.

NLRC Ruling (2 August 1993) and Denial of Reconsideration (14 October 1993)

On appeal, the NLRC reversed the Labor Arbiter’s decision, except as to 13th month pay, which it sustained but ordered recomputation based on actual services under the new owner up to separation on 20 June 1992. The NLRC held that the change of ownership was made in good faith, noting the absence of evidence that the former owners conspired with the new owners to insulate the former management from liability. It ruled that the Labor Arbiter misapplied Mobil Employees Association because Mobil involved termination under Article 283 (then Article 284) of the Labor Code due to retrenchment or cessation, not termination resulting from change of corporate ownership or consolidation or merger. The NLRC emphasized that a change of ownership is not a just cause to terminate employment without a definite period, while also recognizing that a sale or disposition motivated by good faith constitutes an element of exemption from liability, particularly where an innocent transferee has no duty to continue employing the transferor’s employees and is liable for past unfair labor practices only under limited exceptions, such as assumption of liability or participation in defeating employees’ rights.

The NLRC also sustained the probationary hiring as a management prerogative. It reasoned that the new management needed time to determine qualifications and that probationary employees are on trial. It held that the petitioners’ motion for reconsideration was properly denied in the NLRC’s resolution of 14 October 1993.

Petitioners’ Theory and Respondents’ Position in the Certiorari Proceedings

In the Rule 65 petition, the petitioners argued that the NLRC acted with grave abuse of discretion in reversing the Labor Arbiter. They maintained that they remained regular employees regardless of the change of management in September 1991 and their execution of the Release and Waiver. They asserted that the juridical personality of a corporation remains unaffected by changes in the ownership of its shares, and that the Release and Waiver should not be treated as controlling because the consideration was allegedly inadequate. They also contended that employees who receive separation pay are not barred from contesting the legality of their dismissal, and that quit claims executed by laborers are frowned upon as contrary to public policy.

The private respondent countered that the petitioners had been legally terminated from their previous employment, evidenced by the Release and Waiver and their applications for employment with the new owner. It asserted that the new owner was within its legal prerogative in treating the petitioners as probationary/temporary employees. It also argued that the petitioners were not illegally dismissed and therefore were not entitled to reinstatement and other reliefs.

Supreme Court’s Evaluation: Good Faith Change of Ownership and Management Prerogative

The Court rejected the Labor Arbiter’s reliance on Mobil Employees Association and sustained the NLRC’s framework. The Court held that Mobil was not applicable because it involved termination under the Labor Code provisions on cessation of business operations, including a complete withdrawal from business and dissolution. Here, the Court reasoned, there was only a change of ownership of the corporation, and the corporation as a separate juridical entity continued to exist. Thus, the question of whether there was a closing or cessation of business operations was not material.

The Court further found that the change in ownership was done in good faith. It noted that before the filing of the complaints, the petitioners did not raise any doubt regarding the motive for the ownership change. Instead, upon being informed of their eventual termination from employment, they accepted their separation pay and other benefits and individually executed the Release and Waiver acknowledged before a DOLE hearing officer. The Court reiterated that a change of ownership in a business concern is not proscribed by law.

Referencing Central Azucarera del Danao vs. Court of Appeals, the Court stressed the principle that the sale or disposition of a business motivated by good faith is an element of exemption from liability. It stated that an innocent transferee has no liability to continue employing employees of the transferor and is not liable for past unfair labor practices except when liability is assumed under the contract of sale or when the new owners participate in thwarting or defeating employees’ rights. Where the transfer is in good faith, the transferee has no legal duty to absorb the transferor’s employees. The transferee’s only obligation, for reasons of public policy and social justice, is to give preference to qualified separated employees in the filling of vacancies.

Applying those principles, the Court held that because the petitioners were effectively separated due to a bona fide change of ownership and they were paid separation pay which they freely and voluntarily accepted, Super Mahogany was under no obligation to employ them, though it could give them preference in hiring. The private respondent did hire all the petitioners except Rosario Cuarto, and it did so on probationary basis. The Court held that the non-hiring of Cuarto was legally permissible because hiring on probationary terms is an exclusive management prerogative and because an employer may choose who will be hired and who will be denied employment. The constitutional protection of security of tenure extends to probationary employees only until the expiration of the probationary period and after the employer’s reasonable standards have been applied to determine qualification for regular employment.

Expiration of Probation and Mootness as to the Remaining Dismissal Issues

The Court observed that the petitioners requested a deferral of the effective date of their separation from 13 June 1992 to 20 June 1992. The Court held that this date apparently coincided with the expiration of the six-month probationary period. With that development, the Court ruled that the question of whet