G.R. No. 184517 - SME Bank, Inc. vs. De Guzman

Case Summary (G.R. No. 184517)

Procedural History

Respondent-employees filed complaints before the Regional Arbitration Branch of the NLRC alleging unfair labor practice, illegal dismissal, illegal deductions, underpayment, and nonpayment of allowances, separation pay and 13th month pay. The labor arbiter found the employees were illegally dismissed and ordered Agustin and De Guzman to pay separation pay but dismissed the complaint against the Samson Group. The NLRC reversed and held Agustin, De Guzman and the Samson Group jointly and severally liable for separation pay and backwages. The Court of Appeals affirmed the NLRC in two separate decisions. The Samson Group filed separate Rule 45 petitions to the Supreme Court, which consolidated the petitions for resolution.

Material Facts

In mid-2001 SME Bank encountered financial difficulties and negotiations were initiated to sell the bank to Abelardo Samson. Samson’s representative transmitted Letter Agreements to Agustin and De Guzman containing preconditions for the transfer: (a) guarantee of peaceful turnover and transition of management and (b) termination/retirement of certain employees upon transfer of shares, with waiver of retirement benefits of officers/stockholders/board of directors and an undertaking to honor rank-and-file retirement benefits in accordance with relevant law. Agustin and De Guzman signed the conforme portions and, on 11 September 2001, sold 86.365% of SME Bank’s shares to spouses Abelardo and Olga Samson. Prior to the share transfer, SME Bank’s general manager, Simeon C. Espiritu, convened employees and persuaded them to tender resignations (or, in one instance, a retirement letter) on the representation that they would be rehired upon reapplication. Respondent-employees submitted resignation/retirement letters dated 27 August and September 2001 and later applied for rehire on 11 September 2001; except for Simeon, Jr., they were not rehired. The employees demanded separation pay, which was denied, prompting the labor complaints.

Central Legal Issues

(1) Whether the employees were illegally dismissed despite having tendered resignation or retirement letters; (2) whether a change in corporate shareholding (stock sale) constitutes a valid ground to terminate corporate employees en masse; (3) which parties are legally liable for any unlawful termination; and (4) appropriate remedies and damages.

Supreme Court’s Core Holding on Illegal Dismissal

The Court held that respondent-employees were illegally dismissed. It found that the resignation and retirement letters were not the voluntary, intelligent relinquishments required for valid resignations or retirements but were induced by representations that employees would be rehired by the new management. The totality of the circumstances showed the employees tendered “courtesy” resignations or an involuntary retirement to satisfy a precondition in the Letter Agreements; reliance on the representations and the failure to rehire demonstrate involuntariness. Accordingly, the resignations and retirement were treated as dismissals. In Simeon Espiritu, Jr.’s case, the Court separately found constructive dismissal: he was allegedly rehired under diminished rank and benefits, rendering continued employment intolerable and causing an involuntary subsequent resignation.

Stock Sale versus Asset Sale — Legal Significance

The Court differentiated asset sales and stock sales. In asset sales (sale of all or substantially all corporate assets), the buyer in good faith need not absorb the seller’s employees and is generally not liable for past claims, with the seller liable for separation pay. In stock sales (transfer of controlling shares at shareholder level), the corporate entity remains the same employer; a mere change in equity composition does not alter the employer-employee relationship nor furnish a just or authorized cause for terminating corporate employees. The transaction in this case was a stock sale; therefore, the corporation continued to be the employer and could not lawfully dismiss employees absent just or authorized causes under the Labor Code.

Reconsideration and Reversal of Precedent (Manlimos)

The Court expressly revisited and reversed the portion of Manlimos v. NLRC that had applied a doctrine suited to asset sales to a stock sale situation. It held that Manlimos erroneously extended an asset-sale rule to stock sales and that, in stock sales, the new majority shareholders are not automatically free from the obligation to respect employees’ security of tenure. The Court reaffirmed that a mere change in majority shareholders or management cannot be used to circumvent security of tenure and effect mass terminations without just or authorized cause.

Liability — SME Bank, Former Directors, and New Shareholders

SME Bank remained the employer before and after the equity transfer and is therefore liable for the employees’ claims. Agustin and De Guzman, as corporate directors who agreed to the precondition and induced the resignations, acted in bad faith; that bad faith justified piercing the corporate fiction and holding them solidarily liable with SME Bank for illegal dismissal. By contrast, spouses Abelardo and Olga Samson were not shown to have been corporate officers or directors at the time the dismissals occurred and were not proved to have exercised legal control or acted maliciously or in bad faith in the terminations; thus, they were not held personally liable. Aurelio Villaflor, Jr. (bank president) was not shown to have participated in the illegal acts and therefore was not personally liable.

Remedies and Damages Awarded

The Court confirmed that illegally dismissed employees are entitled to reinstatement or, where reinstatement is not viable or is not sought, separation pay in lieu of reinstatement, plus backwages. Here, the employees sought separat

Case Syllabus (G.R. No. 184517)

Court and Case Identifiers

Supreme Court, En Banc; G.R. No. 184517 (Decision dated October 08, 2013; reported July 21, 2014 as 719 Phil. 103; 110 OG No. 29, 4525).
Consolidated petitions: G.R. No. 184517 and G.R. No. 186641.
Court of Appeals decisions below: CA-G.R. SP No. 97510 (Decision dated 13 March 2008; Resolution dated 1 September 2008) and CA-G.R. SP No. 97942 (Decision dated 15 January 2008; Resolution dated 19 February 2009).
National Labor Relations Commission (NLRC) Decision dated 8 May 2006; Labor Arbiter Decision dated 27 October 2004 (Regional Arbitration Branch No. III).

Parties

Petitioners: SME Bank, Inc.; Abelardo P. Samson; Olga Samson; Aurelio Villaflor, Jr.
Respondents: Peregrin T. De Guzman; Eduardo M. Agustin, Jr.; employees Elicerio B. Gaspar, Ricardo B. Gaspar, Jr., Eufemia E. Rosete, Fidel E. Espiritu, Simeon B. Espiritu, Jr., and Liberato B. Mangoba.
The cases below also involved the “Samson Group” (spouses Abelardo and Olga Samson and Aurelio Villaflor).

Core Legal Questions Presented

Were the respondent-employees illegally dismissed from SME Bank?
If illegal dismissal occurred, which parties are legally liable for the employees’ claims and to what extent?
Whether a change in corporate equity/majority shareholders (a stock sale) permits termination of employees absent just or authorized causes under the Labor Code.
Whether prior jurisprudence (notably Manlimos v. NLRC) correctly applies to stock sale situations.

Relevant Constitutional and Statutory Provisions Cited

Constitution: Article XIII, Section 3 (security of tenure).
Labor Code provisions: Article 279 (security of tenure referenced), and Article 283 (Closure of Establishment and Reduction of Personnel — conditions and notice requirements).

Factual Background — Pre-Sale Corporate Condition and Negotiations

By June 2001 SME Bank experienced financial difficulties; bank officials proposed sale to Abelardo Samson.
Samson (through attorney-in-fact Tomas S. Gomez IV) sent Letter Agreements to Eduardo Agustin and Peregrin De Guzman setting preconditions for sale, which included:
- Guarantee of peaceful turnover of assets and peaceful transition of management;
- Termination/retirement of mutually agreed employees upon transfer of shares in favor of the buyer’s nominees;
- Waiver of retirement benefits, if any, of officers/stockholders/board upon consummation; and
- Assurance that rank-and-file employees’ retirement benefits would be honored by new management per B.R. No. 10, S. 1997.
Agustin and De Guzman signed the conforme portions of the Letter Agreements.

Factual Background — Employee Resignations, Retirement, Sale and Rehiring Representations

Simeon Espiritu (then general manager) convened head office and branch employees and persuaded them to tender resignations, promising rehiring upon reapplication; this directive allegedly made at Olga Samson’s behest.
Employees (Elicerio, Ricardo, Fidel, Simeon Jr., Liberato) tendered resignation letters dated 27 August 2001.
Eufemia first tendered a resignation dated 27 August 2001, and later a retirement letter dated September 2001.
Employees submitted application letters on 11 September 2001; resignation/retirement and application letters were transmitted by Espiritu to Samson’s representative on 11 September 2001.
On 11 September 2001 Agustin and De Guzman sold 86.365% of SME Bank’s shares to Abelardo and Olga Samson; spouses Samson became principal shareholders and Aurelio Villaflor, Jr. was appointed bank president.
Except for Simeon Jr., respondent employees were not rehired; Simeon Jr. returned to work for about a month and then again resigned (resignation effective 15 October 2001).

Administrative/Labor Proceedings (Lower Courts and Agencies)

Employees filed Complaint before NLRC Regional Arbitration Branch No. III against SME Bank, spouses Samson and Villaflor for claims including unfair labor practice; illegal dismissal; illegal deductions; underpayment; nonpayment of allowances, separation pay and 13th month pay. Complaint later amended to include Agustin and De Guzman.
Labor Arbiter (27 October 2004):
- Found employees were illegally dismissed because they were induced to tender resignations/retirements relying on representations they would be rehired and given separation benefits.
- Ordered Agustin and De Guzman to pay separation pay totaling P339,403.00 (per-employee breakdown specified).
- Dismissed claims against Abelardo Samson, Olga Samson and Aurelio Villaflor for lack of merit.
NLRC (8 May 2006):
- Modified the labor arbiter decision, finding a mere transfer of shares/change of management did not justify termination; declared illegal dismissal.
- Ordered Agustin, De Guzman and the Samson Group to be jointly and severally liable to pay backwages from 11 September 2001 until finality, separation pay at one month per year of service, moral and exemplary damages (P10,000 and P5,000 respectively) and 5% attorney’s fees; other dispositions affirmed.
- Denied motions for reconsideration (28 November 2006).
Court of Appeals (CA):
- CA-G.R. SP No. 97510: Decision dated 13 March 2008 affirmed NLRC decision (petition denied); Motion for Reconsideration denied (Resolution dated 1 September 2008).
- CA-G.R. SP No. 97942: Decision dated 15 January 2008 likewise affirmed NLRC; Motion for Reconsideration denied (Resolution dated 19 February 2009).

Issues Brought to the Supreme Court

Are the employees’ dismissals illegal given the facts surrounding the resignations/retirement letters and the subsequent stock sale?
Which parties are liable and to what extent — SME Bank as employer; Agustin & De Guzman as former shareholders/directors; Samson spouses and Villaflor as new majority shareholders/management?
Whether prior case law (Manlimos v. NLRC) remains governing in stock sale situations.

Supreme Court Holdings — Summary

The petitions were partially granted.
The Court held that respondent-employees were illegally dismissed.
SME Bank remained the employer after the stock sale and is liable for the employees’ claims.
Eduardo M. Agustin, Jr. and Peregrin T. De Guzman, Jr., as corporate directors who acted in bad faith, are solidarily liable with SME Bank for the employees’ claims.
Abelardo and Olga Samson, and Aurelio Villaflor, Jr., were not held personally liable for illegal dismissal; the Court reversed and set aside the CA insofar as it held the Samson spouses and Villaflor solidarily liable.
The Court expressly reversed its prior pronouncement in Manlimos v. NLRC to the extent that Manlimos applied an asset-sale doctrine to a stock sale and held that new majority shareholders had no obligation to retain employees; the Court clarified that a stock sale (change in equity composition) does not justify dismissal absent a just or authorized cause.
The employees are entitled to separation pay (one-month pay for every year of service as prayed in lieu of reinstatement), full backwages, moral and exemplary damages, and attorney’s fees.

Detailed Rationale: Illegality of Dismissals — General Principles Applied

Security of tenure is constitutionally guaranteed (Const., Art. XIII, Sec. 3); employees may not be terminated from regular employment except for just or authorized causes under the Labor Code.
Resignation as a voluntary act requires intelligent, free intent to relinquish office and an act of relinquishment; resignation letters couched with gratitude are not, by themselves, conclusive proof of a valid voluntary resignation.
Totality of circumstances must be considered to determine voluntariness of resignation.
Retirement must likewise be voluntary to be valid; involuntary retirement is tantam