G.R. No. 190187 - Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc.

Case Summary (G.R. No. 190187)

Key Dates and Procedural History (selected)

April 4, 2005: Unocal Corporation executed the Agreement and Plan of Merger with Chevron and Blue Merger.
January 31, 2006: Unocal Philippines and the Union executed a Collective Bargaining Agreement.
October 20, 2006: Union requested separation benefits, asserting implied dismissal due to the parent-company merger.
February 5, 2007: Parties agreed to voluntary arbitration before the Secretary of Labor (docketed OS-VA-2007-04).
January 15, 2008: Secretary of Labor rendered a decision awarding separation pay on the ground of implied termination due to merger.
July 23, 2009: Court of Appeals (CA) reversed the Secretary of Labor’s decision.
November 9, 2009: CA denied Union’s motion for reconsideration.
(Note: the Supreme Court decision resolving the petition was decided after 1990; the 1987 Constitution governs the analysis.)

Applicable Law and Contractual Provisions

Constitution (1987): Article II, Section 18 (State’s affirmation of labor as a primary social-economic force); Article XIII, Section 3 (full protection to labor; security of tenure; collective bargaining, etc.).
Corporation Code, Section 80 (effects of merger or consolidation).
Labor Code provisions on security of tenure and just/authorized causes for termination (Articles 279, 282, 283).
Department Order No. 40-03, Rule XIX, Section 7 (procedural finality of Secretary’s decision in voluntary arbitration).
Collective Bargaining Agreement (Article XII, Section 2) and the Memorandum of Agreement (Annex B): separation pay payable only upon reduction due to redundancy, retrenchment or installation of labor-saving devices, or closure and cessation of operations.

Factual Background

Unocal Corporation merged with Blue Merger and Chevron such that Blue Merger became the surviving corporation and later changed its name to Unocal Corporation, with Chevron as the ultimate parent. Following the merger, the Union contended that the merger resulted in closure and cessation of operations of Unocal Philippines (or otherwise created a new employer), implying termination of the Union’s members and entitling them to separation benefits under the CBA. Unocal Philippines denied that it closed, ceased operations, or terminated employees; it maintained operations continued with the same manpower complement, and employees retained their tenure, salaries, and benefits.

Proceedings Below and Competing Claims

The parties submitted the dispute to voluntary arbitration before the Secretary of Labor, who found an implied termination arising from the merger and awarded separation pay under the CBA. Unocal Philippines sought review in the Court of Appeals, arguing (inter alia) that it was not a party to the parent-company merger, that it continued operations unchanged, and that no grounds for separation pay (as defined in the CBA) existed. The Court of Appeals reversed the Secretary of Labor, holding that Unocal Philippines retained a separate juridical personality, remained undissolved, and its employees were not affected by the parent-company merger.

Issues Considered by the Supreme Court

Whether respondent changed the theory of its case on appeal (raising a new factual theory for the first time before the CA).
Whether the Merger Agreement among Unocal Corporation, Blue Merger, and Chevron resulted in implied termination of the Union’s members’ employment.
Whether the Union’s members are entitled to separation benefits under the CBA and Memorandum of Agreement.

Supreme Court: Change of Theory on Appeal

The Court found that Unocal Philippines did change its theory on appeal. In earlier pleadings before the Secretary of Labor, Unocal Philippines described itself or its status in terms inconsistent with the position later advanced before the CA. Specifically, statements in its position paper treated Unocal Philippines as the surviving corporation or as a branch of Unocal Corporation, whereas on appeal it asserted that it was a separate subsidiary and not a party to the parent-company merger. The Court applied settled appellate procedure principles: factual issues not raised below cannot be raised for the first time on appeal because doing so would deny the adverse party an opportunity to present evidence to meet the new issue. The respondent’s claim that it fell within the narrow exception allowing a party to change legal theory on appeal was rejected because the exception presupposes that the adverse party would not be required to present further evidence; here, the issue of whether Unocal Philippines was a branch or a subsidiary could have been litigated below and was a factual matter that the Union could have contested with evidence. The CA therefore erred in considering this new factual contention.

Supreme Court: Legal Effect of a Merger on Employment Contracts

On the central merits question, the Court reasoned that a corporate merger, by its nature and under Section 80 of the Corporation Code, vests the surviving corporation with all the rights, properties, liabilities, and obligations of the absorbed corporation. Applying that statutory framework together with the constitutional policy of protecting labor (security of tenure and full protection to workers), the Court followed the principle established in prior jurisprudence that the surviving corporation automatically assumes the employment contracts of the absorbed corporation. Employment contracts subsist post-merger; there is not an automatic or implied dismissal of absorbed employees merely because a merger occurred. The Court emphasized that this approach aligns with constitutional directives favoring protection of labor and prevents placing employees in legal limbo after corporate restructuring.

Supreme Court: The Union’s Consent and the Employees’ Options

The Court acknowledged the Union’s argument that its members did not contract directly with the surviving corporation and emphasized that employees retain freedom to contract and the right not to be involuntarily bound. However, the Court clarified that automatic assumption of employment contracts by the surviving corporation does not coerce employees to remain; employees may resign or retire voluntarily, and employers must comply with statutory just or authorized causes to validly dismiss employees. Thus, the legal regime balances continuity of employment with employees’ freedom to terminate their service.

Supreme Court: Separation Pay under the CBA and Memorandum of Agreement

The Court closely construed the contractual terms governing separation pay. The CBA and the contemporaneous Memorandum of Agreement limited separation pay to employees who "lose

Case Syllabus (G.R. No. 190187)

Parties and Case Caption

Petitioner: Philippine Geothermal, Inc. Employees Union, the legitimate labor union and duly recognized bargaining agent of the rank-and-file employees of Unocal Philippines.
Respondent: Unocal Philippines, Inc. (formerly Philippine Geothermal, Inc.; a foreign corporation incorporated under the laws of the State of California, licensed to do business in the Philippines), now known as Chevron Geothermal Philippines Holdings, Inc.
Action: Petition for Review on Certiorari from the Court of Appeals Decision dated July 23, 2009 and Resolution dated November 9, 2009 (C.A.-G.R. SP No. 102184), docketed in the Supreme Court as G.R. No. 190187, decided September 28, 2016.
Panel (Supreme Court): Decision by Justice Leonen; concurrence by Justices Leonardo-De Castro, Mendoza (Acting Chairperson), and Jardeleza; Justice Velasco, Jr. concurred but distinguished from other cases; notes on designated additional members per raffles.

Facts and Background

Unocal Philippines is a foreign corporation licensed to do business in the Philippines for geothermal exploration and development and operates geothermal steam fields in Tiwi, Albay and Makiling-Banahaw, Laguna owned by the National Power Corporation.
Corporate structure: Unocal Philippines is a wholly owned subsidiary of Union Oil Company of California (Unocal California), which is in turn a wholly owned subsidiary of Union Oil Corporation (Unocal Corporation).
On April 4, 2005, Unocal Corporation executed an Agreement and Plan of Merger (Merger Agreement) with Chevron Texaco Corporation (Chevron) and Blue Merger Sub, Inc. (Blue Merger), a wholly owned subsidiary of Chevron.
Under the Merger Agreement, Unocal Corporation merged with Blue Merger; Blue Merger became the surviving corporation and later changed its name to Unocal Corporation; Chevron became the parent corporation of the merged entities.
On January 31, 2006, Unocal Philippines executed a Collective Bargaining Agreement (CBA) with the Union; Memorandum of Agreement (MOA) dated November 1, 2005 setting out separation pay formula and triggering events is part of the contractual framework.
On October 20, 2006, the Union requested separation benefits under the CBA, asserting that the Merger Agreement resulted in closure and cessation of operations of Unocal Philippines and the implied dismissal of its employees.
Unocal Philippines refused, asserting it never closed or ceased operations, that it was not terminated and that employees retained tenure, salaries and benefits.
Parties submitted to the Department of Labor and Employment (DOLE) Administrative Intervention for Dispute Avoidance Program without agreement; Union filed a Notice of Strike which was later withdrawn; parties agreed to voluntary arbitration before the Secretary of Labor (docketed OS-VA-2007-04).

Procedural History

Secretary of Labor Decision (January 15, 2008): Secretary Brion ruled the Union’s members were impliedly terminated as a result of the Merger Agreement and awarded separation pay under the CBA; the decision stated that Unocal and Chevron merged into one corporate entity and employees were impliedly terminated; decision final and executory per Department Order No. 40-03.
Unocal Philippines filed a Petition for Review with the Court of Appeals, arguing it was not a party to the parent corporation’s merger, that it never ceased operations, and that employees were not terminated.
Court of Appeals Decision (July 23, 2009): granted Unocal Philippines’ appeal, reversed the Secretary of Labor’s decision, held that Unocal Philippines had separate and distinct juridical personality and remained undissolved, and that the CBA only provided separation pay for redundancy, retrenchment, installation of labor-saving devices, or closure/cessation of operations — none of which occurred.
Court of Appeals Resolution (November 9, 2009): denied the Union’s Motion for Reconsideration.
Union filed Petition for Review in the Supreme Court (G.R. No. 190187), assailing the Court of Appeals’ reversal and raising additional arguments.

Issues Presented to the Supreme Court

Whether Unocal Philippines changed its theory of the case on appeal (i.e., whether it improperly raised that it was not a party to the merger for the first time on appeal).
Whether the Merger Agreement executed by Unocal Corporation, Blue Merger, and Chevron resulted in the termination of the employment of the Union’s members (i.e., implied dismissal).
Whether the Union’s members are entitled to separation benefits under the CBA and MOA.

Secretary of Labor’s Ruling (as Presented in Record)

Finding: merger resulted in new contracts and a new employer for the Union’s members and implied termination of employment absent employees’ consent to new contracts.
Relief: awarded separation pay under Article XII, Section 2 and Annex “B” of the CBA between Unocal Philippines and the Union.
Dispositive portion quoted: “WHEREFORE , this Office rules that Unocal and Chevron merged into one corporate entity and the employees were impliedly terminated from employment. Accordingly, they are entitled to the separation benefits provided under ARTICLE XII, SECTION 2 and ANNEX ‘B’ of the collective bargaining [agreement] between UNOCAL PHILIPPINES, INC. and the PHILIPPINE GEOTHERMAL, INC. EMPLOYEES UNION . Pursuant to Section 7, Rule XIX of Department Order No. 40-03 , series of 2003, this Decision shall be final and executory after ten (10) calendar days from receipt hereof and it shall not be subject of a motion for reconsideration. SO ORDERED.” (Emphasis in the original)

Court of Appeals’ Rationale and Holding

Held that Unocal Philippines was a separate juridical entity from Unocal Corporation, the party to the Merger Agreement.
Found Unocal Philippines remained undissolved and its employees were unaffected by the parent corporation’s merger; evidentiary support included the Union’s assumption of its role as bargaining representative a few months after the merger and continuity of operations with same manpower complement and maintained tenure, salaries, and benefits.
Interpreted the CBA as providing separation pay only for redundancy, retrenchment/installation of labor-saving devices, or closure/cessation of operations; none occurred.
Noted that the Union’s members’ desire to discontinue employment with Unocal Philippines does not, by law or contract, justify separation pay.
Dispositive portion quoted: “WHEREFORE , premises considered, the Decision dated 15 January 2008, of the Department of Labor and Employment (DOLE) in OS-VA-2007-04 is hereby REVERSED and SET ASIDE . SO ORDERED.” (Emphasis in the original)

Petitioner’s (Union) Arguments on Review

Alleged that respondent changed its theory of the case: respondent argued merger (not sale) before the Secretary of Labor but later argued on appeal that it was not a party to the merger.
Contended Court of Appeals erred in accepting a changed theory and in reversing the Secretary of Labor’s award.
Argued the merger resulted in