G.R. No. L-59743 - National Federation of Sugar Workers vs. Ovejera

Case Summary (G.R. No. L-59743)

Facts

McLeod alleged continuous employment from 1956 (UTEX) and, from June 20, 1980, as Vice‑President/Plant Manager of PMI until retirement age in 1993. He claimed unpaid retirement benefits, vacation and sick leave, holiday pay, underpayment of salary and 13th month pay, unpaid unused airline tickets, moral and exemplary damages, and attorney’s fees. PMI ceased plant operations after a prolonged strike (1989–1992), executed a dation in payment of plant assets to SRTI (June 15, 1992), and extended McLeod’s services to wind up affairs through December 31, 1992. Respondents contended McLeod was an employee only of PMI, not of Filsyn, FETMI, or SRTI; alleged PMI paid most employees separation and other claims; asserted McLeod became a consultant of SRTI after closure; and denied various claimed benefits or said they were included in his pay.

Procedural history

McLeod filed before the Labor Arbiter (decision April 3, 1998), appealed to the NLRC (decision Dec. 29, 1998), then to the Court of Appeals (judgment June 15, 2000 with modification), and finally sought review by the Supreme Court under Rule 45.

Labor Arbiter decision

The Labor Arbiter found all respondents jointly and solidarily liable and awarded retirement pay (computed on P60,000 for claimed service), vacation/sick leave, underpaid salaries, holiday pay, underpaid 13th month pay, moral and exemplary damages (P3,000,000 and P1,000,000 respectively), attorney’s fees (10%), and unused airline tickets (in foreign currency). Total award exceeded P5 million plus dollar claims.

NLRC decision

The NLRC reversed and set aside the Labor Arbiter, holding PMI liable only. It awarded retirement pay computed as 22.5 days per year for 12 years based on a P50,495 monthly rate, and dismissed all other claims for lack of merit.

Court of Appeals decision

The Court of Appeals affirmed the NLRC with modification: it held PMI and Patricio jointly and solidarily liable for retirement pay equivalent to 22.5 days per year for 12 years at P50,495 monthly, awarded moral damages (P100,000), exemplary damages (P50,000), and attorney’s fees (10% of total award). The CA rejected McLeod’s attempt to pierce corporate fiction to hold all respondent corporations jointly liable but sustained personal liability of Patricio on the view he deliberately and maliciously evaded PMI’s obligation.

Issues presented to the Supreme Court

Whether employer‑employee relationships existed between McLeod and the various private respondents; 2) Whether the corporate veil of separate juridical personality could be pierced to impose joint liability on related corporations; 3) Whether Patricio or other officers could be held personally liable; 4) Whether McLeod was entitled to the benefits claimed (retirement, leave, holiday pay, 13th month, airline tickets, damages, attorney’s fees); 5) Related procedural issues on perfection of appeal.

Supreme Court — employer‑employee relationship and evidentiary findings

The Supreme Court found substantial record evidence that McLeod’s regular employment was with PMI (appointment, board confirmation, his own testimony, payment records). McLeod failed to prove employer‑employee relationships with Filsyn, FETMI, or SRTI; he produced no written employment contracts, payroll or SSS registrations, organizational charts, or co‑employee testimony linking him as an employee of those corporations. The Court reiterated that affirmative allegations must be supported by substantial evidence even in NLRC proceedings.

Supreme Court — piercing the corporate veil

The Court reaffirmed the stringent standard for disregarding corporate personality: piercing is allowed only when the corporate form is used to defeat public convenience, justify wrong, protect fraud, or where one corporation is a mere alter ego/continuation of another. Mere shared address, common counsel, interlocking directors or related business are insufficient. The dation in payment between PMI and SRTI did not constitute a merger, consolidation, an implied assumption of liabilities by SRTI, nor a fraudulent device to evade creditors; the deed expressly disclaimed assumption of PMI’s creditors and contained warranties that PMI would hold SRTI free from PMI’s liabilities. Accordingly, only PMI was McLeod’s employer.

Supreme Court — personal liability of corporate officer (Patricio)

The Court applied the rule that corporate officers are personally liable only upon clear evidence of assent to patently unlawful acts, bad faith, gross negligence, conflict of interest causing damage, express agreement to be personally liable, or specific statutory imposition. The record did not support a finding of malice, bad faith, or conscious wrongdoing by Patricio; PMI’s financial difficulties and closure after strike losses did not, by themselves, establish personal liability. The Supreme Court therefore absolved Patricio of personal liability (modifying the Court of Appeals).

Supreme Court — managerial status and entitlement to benefits

The Court upheld the NLRC/CA finding that McLeod was a managerial employee of PMI (Vice‑President/Plant Manager), and as such he was excluded from the coverage of Title I, Book Three of the Labor Code for certain benefits (Article 82). Payment of vacation, sick leave and holiday pay depends on employer policy or agreement; no enforceable agreement or regular practice entitled McLeod to the additional leave/holiday claims he advanced. Reimbursement of occasional airline tickets (e.g., trips in 1983 and 1986) did not establish a regular, enforceable company practice that would support a claim for monetary equivalent of unused tickets. McLeod’s claim for 13th month p

Case Syllabus (G.R. No. L-59743)

Case Caption, Nature and Procedural Posture

Reported at 541 Phil. 214; G.R. No. 146667; Decision promulgated January 23, 2007; ponente: Justice Carpio.
Petition for review under Rule 45 of the Rules of Court seeking to set aside: (a) Court of Appeals Decision dated 15 June 2000 in CA-G.R. SP No. 55130 (affirming with modification the NLRC decision); and (b) Court of Appeals Resolution dated 27 December 2000.
Underlying labor complaint docketed with the Labor Arbiter as NLRC NCR 02-00949-95, involving claims for retirement benefits, vacation and sick leave benefits, unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorney’s fees and interest.
Parties: Petitioner John F. McLeod (complainant/former employee) versus multiple corporate respondents (Peggy Mills, Inc. / Sta. Rosa Textiles, Inc. / Far Eastern Textile Mills, Inc. / Filipinas Synthetic Fiber Corporation) and individual respondents Patricio L. Lim and Eric Hu, with the NLRC and Court of Appeals as prior tribunals.

Material Facts (as summarized by the Labor Arbiter and adopted by NLRC and CA)

McLeod’s employment history:
- Hired as Assistant Spinning Manager of Universal Textiles, Inc. (UTEX) in 1956; promoted to Senior Manager and worked until 1980 under President Patricio Lim.
- Absorbed by Peggy Mills, Inc. (PMI) as Vice President and Plant Manager of Sta. Rosa plant; employment with PMI dated from 20 June 1980 (acting VP/GM) and confirmed by PMI Board on 10 February 1981.
- Alleged last regular monthly salary before reductions: P60,000; respondents assert that salary was reduced in August 1990 to P50,495 and that McLeod accepted or received the reduced amount thereafter.
Plant operations and industrial dispute:
- A strike by PMI rank-and-file commenced 19 August 1989 and continued through July 1992; PMI suffered irreversible losses that resulted in cessation of operations and a Notice of Closure to DOLE dated 21 July 1992.
- Under a compromise agreement, PMI paid employees separation pay; PMI extended McLeod’s task to wind up affairs up to 31 December 1992; McLeod testified he received his last salary from PMI in December 1992.
Corporate transactions:
- PMI executed a Deed of Dation in Payment with Lease dated 15 June 1992 with Sta. Rosa Textile Corporation (SRTC/SRTI) to settle debts (P210,000,000 advances) and transfer assets by dation in payment, with a simultaneous lease-back arrangement for PMI.
- The Deed of Dation explicitly contains a warranty by PMI to hold SRTC free and harmless from PMI’s creditors’ and labor claims arising from PMI’s operations (except ordinary wear and tear).
- Respondents contend SRTI acquired only assets, not liabilities; PMI remained a separate juridical entity; SRTI did not assume PMI liabilities.
Claims and demands:
- McLeod alleged unpaid retirement benefits, unpaid vacation and sick leave since January 1986, denied or unpaid holiday pay, unused airline tickets (four round-trip business class tickets between Manila–London–Manila for certain years), reductions in salary without consent (P60,000 to P50,495 from Aug. 1990 to Nov. 1993), underpayment of 13th month pay for 1993, and sought moral and exemplary damages plus attorney’s fees.
- Respondents denied employer-employee relationships between McLeod and Filsyn, FETMI, SRTI (except PMI), contested entitlement to claimed benefits, asserted offsetting counterclaims (total P36,757), and argued many claimed benefits were non-existent for managerial personnel, consultant status, or were included in salary.

Parties’ Contentions (Complainant)

McLeod:
- Asserts continuous employment and service in managerial capacity starting with PMI; claims entitlement to retirement and other benefits on account of his long service and the company’s policies/CBA provisions.
- Argues salary was P60,000 then unlawfully reduced to P50,495 without his consent and that he was assured reimbursement which never materialized.
- Asserts respondents are one and the same entities (same address, counsel, offices, key personnel), thus solidarily liable; urges piercing of the corporate veil for evasion of obligations.
- Contends his absence or limited attendance during the strike period resulted from the strike and cessation of operations; denies resignation and claims he applied for retirement.
- Asserts entitlement to unused airline tickets (monetary equivalent), unpaid vacation, sick leave, holiday pay, and 13th month pay; claims moral and exemplary damages and attorney’s fees.

Parties’ Contentions (Respondents)

PMI, Filsyn, FETMI, SRTI, Patricio Lim, and Eric Hu:
- PMI admits McLeod’s employment with PMI, but contends the other corporate respondents are separate juridical entities that did not employ McLeod and did not assume PMI liabilities.
- Asserts that Peggy Mills closed operations because of the strike and irreversible losses, and that SRTI acquired PMI assets by dation in payment and did not assume liabilities; SRTI hired McLeod as a consultant after PMI stopped operations.
- Contends McLeod’s salary reduction was by agreement/acknowledgement due to financial difficulty; asserts McLeod was managerial/excluded from certain statutory benefits (Article 82 Labor Code) unless there was an agreement or policy for them.
- Challenges the alleged regularity of airline ticket benefits and 13th month underpayment claims; denies moral and exemplary damages and counsel’s fees claims; claims offsets and counterclaims against McLeod.

Labor Arbiter Decision (3 April 1998)

Dispositive awarded against all respondents jointly and solidarily:
- Retirement benefits (14 years, based on period 6/80–11/30/93): P840,000.00 (P60,000 x 14)
- Vacation and sick leave (3 years): P132,000.00
- Underpayment of salaries (3 years): P342,180.00
- Holiday pay (3 years): P60,000.00
- Underpayment of 13th month pay (1993): P15,816.87
- Moral damages: P3,000,000.00
- Exemplary damages: P1,000,000.00
- Attorney’s fees (10%): P138,999.68
- Unused airline tickets: $7,350.00 (to be converted to peso upon payment)
- Total awarded: P5,528,996.55

NLRC Decision (29 December 1998)

Reversed and set aside the Labor Arbiter decision.
Ordered respondent Peggy Mills, Inc. (PMI) to pay complainant retirement pay equivalent to 22.5 days for every year of service for twelve (12) years (1980–1992) based on a salary rate of P50,495.00 per month.
Dismissed all other claims for lack of merit.
Motion for reconsideration by McLeod denied in NLRC Resolution of 30 June 1999.

Court of Appeals Ruling (15 June 2000)

Affirmed NLRC decision with modification:
- Held Patricio Lim jointly and solidarily liable with Peggy Mills, Inc., to pay:
  - Retirement pay equivalent to 22.5 days for every year of service for 12 years based on salary rate of P50,495.00 per month;
  - Moral damages of P100,000.00;
  - Exemplary damages of P50,000.00;
  - Attorney’s fees equivalent to 10% of the total award.
- Rejected McLeod’s theory that all respondent corporations are one and the same, explaining that identical address, same counsel, common officers/ personnel do not, without more, justify piercing the corporate veil; required clear and convincing proof that SRTI, FETMI, and Filsyn were alter egos or business conduits of PMI.
- Found no employer-employee relationship between McLeod and respondents other than PMI.
- Exonerated Eric Hu for lack of proof of malice or bad faith.
- Upheld NLRC finding on retirement pay computation and rejected claims for vacation/sick/holiday pay on basis McLeod was managerial (Article 82), and rejected claims for airline ticket equivalents, underpayment of salaries and 13th month pay for 1994.

Issues Presented to the Supreme Court

Whether the Court of Appeals’ Decision and Resolution are in accordance with law and jurisprudence.
Whether an employer-employee relationship exists between petitioner and the private respondents for purposes of employer liability.
Whether private respondents may avoid financial obligations by invoking the veil of corporate fiction.
Whether petitioner is entitled t