G.R. No. 188269 - Sumifru Corp. vs. Baya

Case Summary (G.R. No. 188269)

Factual Background

The respondent alleged that he was employed by AMS Farming Corporation (AMSFC) beginning February 5, 1985 and was promoted to supervisory rank on September 1, 1997. He organized and participated in the supervisors’ union and helped form AMSKARBEMCO, the agrarian-reform beneficiary cooperative of AMSFC regular employees. In June 1999 he was seconded to a supervisory position with Davao Fruits Corporation (DFC) while remaining active in AMSKARBEMCO. Following DAR proceedings, approximately 220 hectares of AMSFC’s banana plantation were awarded to agrarian reform beneficiaries, including Baya, and negotiations for an agribusiness venture involving AMSKARBEMCO later collapsed. A referendum in October 2001 favored AMSKARBEMCO over a pro-company group, SAFFPAI. After AMSKARBEMCO entered into an agreement with another firm, AMSFC managers summoned and threatened cooperative officers, and DFC management pressured Baya to shift loyalty to SAFFPAI, which he refused. He received notice that his secondment to DFC ended and was ordered to return to AMSFC, arriving August 30, 2002, but was assigned to rank-and-file duties because supervisory posts were allegedly unavailable. His written request for restoration to a supervisory position on September 20, 2002 was denied. The DAR effected the ARBs’ takeover on September 20, 2002; thereafter, AMSKARBEMCO members were reportedly replaced by newly hired contract workers while SAFFPAI members remained employed.

Labor Arbiter Ruling

In a Decision dated June 30, 2003, the Labor Arbiter found that respondent was constructively dismissed when AMSFC and DFC demoted him from supervisory to rank-and-file assignments without justifiable cause upon his return to AMSFC. The LA reasoned that management knew of the lack of supervisory positions but still ordered his return to force acceptance of lower-ranked work, and that the acts constituting constructive dismissal occurred on August 30, 2002, before the ARBs’ takeover on September 20, 2002. The LA ordered reinstatement to his former position without loss of seniority, or, should reinstatement be impossible, separation pay computed at the company practice of 39.25 days’ salary per year. The LA also awarded backwages and other benefits, moral and exemplary damages, and attorney’s fees.

NLRC Ruling

The NLRC, by Resolution dated March 10, 2004, reversed and set aside the LA Decision except for an award of 13th month pay, and dismissed the complaint for lack of merit. The NLRC concluded that respondent’s termination resulted from the cessation of AMSFC’s business operations in large portions of its plantation due to the State’s agrarian reform program, making any separation involuntary on the part of AMSFC; therefore, separation pay was not due. The NLRC denied reconsideration in its Resolution dated May 31, 2004.

Court of Appeals Ruling

The Court of Appeals, in a Decision dated May 14, 2008, set aside the NLRC Resolutions and reinstated the Labor Arbiter’s ruling with modifications: it deleted awards of backwages, annual vacation leave pay, sick leave pay, monthly housing subsidy, electric light subsidy, and exemplary damages, and ordered AMSFC and DFC to pay respondent the aggregate amount of PHP 278,600.05, consisting of PHP 194,992.82 as separation pay, PHP 8,279.95 as 13th month pay, PHP 50,000.00 as moral damages, and PHP 25,327.28 as attorney’s fees. The CA held that the NLRC gravely abused its discretion because the undisputed facts established constructive dismissal: management ordered respondent’s return despite knowing no supervisory posts existed; respondent had been harassed and urged to switch loyalties to the pro-company cooperative prior to his demotion; the companies’ conduct amounted to cooperative-busting tactics supported by joint affidavits; and the discriminatory acts occurred before the ARBs’ takeover. The CA declined to award backwages in light of respondent’s acquisition of a portion of the plantation under the agrarian reform program. The CA denied reconsideration on May 20, 2009.

Issues Presented

The Supreme Court identified the following issues: whether the CA correctly found that the NLRC gravely abused its discretion and that AMSFC and DFC constructively dismissed respondent; whether AMSFC and DFC are liable to respondent for separation pay, moral damages, and attorney’s fees; and whether Sumifru (Philippines) Corporation, as surviving entity in the merger with DFC, should be held solidarily liable with AMSFC for the monetary awards.

The Supreme Court’s Ruling

The petition for review was denied and the CA Decision and Resolution were affirmed. The Court held that the CA correctly ascribed grave abuse of discretion to the NLRC because the LA’s finding of constructive dismissal rested on substantial evidence. The Court reiterated that constructive dismissal exists when continued employment is rendered impossible or unreasonable by acts such as demotion or diminution of pay and benefits, or when employer conduct becomes so unbearable that the employee is foreclosed from continuing employment. Citing Peckson v. Robinsons Supermarket Corp., the Court reiterated that the burden rests on the employer to prove that a transfer or demotion is a valid exercise of management prerogative and not a subterfuge to remove an employee. The Court found that AMSFC and DFC failed to overcome this burden and did not refute that the termination of secondment occurred after harassment and pressure to switch loyalties and that the acts of demotion predated the DAR takeover, thereby establishing constructive dismissal.

Remedy and Application of Strained Relations Doctrine

The Court applied the strained relations doctrine and affirmed the award of separation pay rather than reinstatement, observing that animosity and antagonism between respondent and his employers rendered reinstatement undesirable or unviable. The separation pay was affirmed as computed by the CA. The Court also upheld awards of moral damages and attorney’s fees because the acts constituting constructive dismissal were tainted with bad faith and designed to punish respondent for his cooperative activity and refusal to switch allegiance.

Corporate Liability and Merger Effects

The Court rejected Sumifru’s contention that it should be liable only for the period respondent served under DFC, holding that under Section 80 of the Corporation Code the surviving corporation in a merger succeeds not only to the assets but also to the liabilities and obligations of the constituent corporation. The Court cited controlling authority that in a merger one corporation survives while the other is dissolved and all rights and liabilities vest in the surviving entity. Because both AMSFC and DFC committed acts constitutive

Case Syllabus (G.R. No. 188269)

Parties and Procedural Posture

SUMIFRU (PHILIPPINES) CORPORATION (SURVIVING ENTITY IN A MERGER WITH DAVAO FRUITS CORPORATION AND OTHER COMPANIES) appeared as petitioner before the Supreme Court challenging the CA rulings in CA-G.R. SP No. 85950.
BERNABE BAYA filed the original complaint for illegal/constructive dismissal before the NLRC and is the respondent in the present petition for review on certiorari.
The case proceeded from a Labor Arbiter Decision dated June 30, 2003 to NLRC Resolutions dated March 10, 2004 and May 31, 2004, then to a Court of Appeals Decision dated May 14, 2008 and Resolution dated May 20, 2009, and finally to the Supreme Court decision dated April 17, 2017.
Sumifru intervened in the Supreme Court proceedings as the surviving entity in a merger with Davao Fruits Corporation and asserted that it only learned of the CA proceedings on June 15, 2009.

Key Facts

BERNABE BAYA alleged employment with AMS Farming Corporation since February 5, 1985 and promotion to supervisory rank on September 1, 1997.
Baya became active in the supervisors' union and helped form AMS Kapalong Agrarian Reform Beneficiaries Multipurpose Cooperative (AMSKARBEMCO) for regular employees.
In June 1999, Baya was seconded to supervisory positions in Davao Fruits Corporation and concurrently remained active in AMSKARBEMCO.
Some 220 hectares of AMSFC land were covered by agrarian reform and transferred to ARBs, including Baya, who later sought agribusiness dealings that ultimately failed.
AMSKARBEMCO won a referendum in October 2001 with 280 members versus 85 for the pro-company SAFFPAI, which precipitated management hostility toward AMSKARBEMCO.
Management allegedly harassed AMSKARBEMCO officers and pressured Baya to switch loyalty to SAFFPAI, which he refused.
A letter reportedly ended Baya’s secondment with DFC and ordered his return to AMSFC on August 30, 2002; he was thereafter assigned to rank-and-file positions despite his supervisory status.
The acts constitutive of alleged constructive dismissal preceded the ARBs' formal takeover of lands on September 20, 2002, and AMSKARBEMCO members were later replaced by contract workers while SAFFPAI members remained employed.

Labor Arbiter Ruling

The Labor Arbiter in a Decision dated June 30, 2003 found that AMSFC and DFC constructively dismissed BERNABE BAYA and ordered reinstatement or payment of separation pay and awards of backwages, benefits, moral and exemplary damages, and attorney's fees.
The LA reasoned that demotion from supervisory to rank-and-file without justification constituted constructive dismissal because the alleged lack of supervisory positions was not a valid excuse for the demotion.
The LA further found that constructive dismissal occurred before the ARBs' takeover and that the selective retention of SAFFPAI members undermined the companies' defense.

NLRC Ruling

The NLRC in a Resolution dated March 10, 2004 reversed the LA except as to 13th month pay and dismissed the complaint for lack of merit.
The NLRC held that termination resulted from cessation of AMSFC’s business operation in large portions of its plantation due to the agrarian reform program and thus was not attributable to illegal/constructive dismissal.
The NLRC viewed the cessation as involuntary and caused by state action, which negated employer liability for separation pay.
The NLRC denied reconsideration in a Resolution dated May 31, 2004.

Court of Appeals Ruling

The Court of Appeals in a Decision dated May 14, 2008 set aside the NLRC resolutions and reinstated the LA deci