Case Summary (G.R. No. 225438)
Background and Management Agreement
In 1991, VFP and VMDC entered into a management agreement whereby VMDC assumed exclusive management and operation of the VFPIA for a share of the lease rentals. This arrangement initially covered five years, renewable similarly, extending up to 1998, after which it continued on a month-to-month basis until the VFP Board terminated it effective December 31, 1999. Consequently, VMDC ceased operations, dismissed its employees effective January 31, 2000, and returned the properties related to VFPIA to VFP.
Labor Complaint and Initial Labor Arbiter Decision
Montenejo, et al., claiming illegal dismissal without just cause or due process, filed a complaint against both VMDC and VFP. The Labor Arbiter ruled against the illegality of the dismissals, affirming that they resulted from VMDC’s business cessation, an authorized cause under labor laws. The employees were recognized as contractual, tied to the term of the management agreement, entitled only to unpaid salaries for the unexpired term and separation pay but not damages or reinstatement. The Arbiter held VFP and VMDC jointly liable for monetary awards due to the indirect employer status of VFP.
National Labor Relations Commission (NLRC) Ruling
On appeal, the NLRC reversed the Labor Arbiter’s decision, declaring the dismissal illegal. The Commission emphasized that VMDC failed to establish a bona fide closure, presenting no formal closure evidence, and had not filed any closure notice with the Department of Labor and Employment (DOLE). It found Montenejo, et al. to be regular employees—not contractual—under VMDC. The NLRC ordered full backwages, separation pay in lieu of reinstatement, 13th month pay, service incentive leave pay (SILP), and cost of living allowance (COLA). It rejected claims for damages based on absence of bad faith, and held VFP solidarily liable with VMDC, applying the doctrine of piercing the corporate veil due to VFP’s majority stockholding of VMDC.
Court of Appeals (CA) Decision and Appeal to the Supreme Court
The CA affirmed the NLRC’s ruling, denying VFP’s petition for certiorari. VFP then elevated the case to the Supreme Court, challenging the findings of illegal dismissal and its joint liability. VFP argued that the dismissal was due to VMDC’s lawful management prerogative to close shop following the termination of the management agreement, without bad faith or circumvention. It also contended that holding it liable through piercing the corporate veil was erroneous.
Supreme Court’s Analysis: Validity of Dismissals and Closure of VMDC
The Supreme Court found that VMDC’s cessation of its business was bona fide, supported by the factual relinquishment of all operational properties to VFP and the dismissal of all employees with proper separation pay. The Court rejected NLRC’s and CA’s view that no formal closure was established, noting that absence of formal notice to DOLE does not negate a valid closure. Precedents regarding bona fide closure versus simulated closures clarified that genuine cessation is an authorized cause for dismissal under Article 298 of the Labor Code.
Legal Effect of Bona Fide Closure on Dismissal
Given the bona fide closure, the Court ruled the dismissals valid and lawful under authorized causes for termination. Consequently, the employees are not entitled to full backwages, separation pay in lieu of reinstatement, 13th month pay, SILP, or COLA, as these benefits are reserved for illegal dismissals. The employees are, however, entitled to separation pay as mandated by law, which they had already received.
Failure to File Notice with DOLE and Resulting Nominal Damages
VMDC’s failure to serve the required notice to DOLE was recognized as a procedural lapse. Applying established doctrines from Agabon and Jaka Food Processing cases, the Court held that procedural noncompliance does not invalidate the dismissal but obligates the employer to pay nominal damages to each dismissed employee. The Court fixed this indemnity at P50,000 each, payable exclusively by VMDC.
Doctrine of Pierc
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Parties and Background Facts
- Petitioner: Veterans Federation of the Philippines (VFP), a national federation of Filipino war veterans’ associations, created under Republic Act No. 2640 in 1960.
- Respondents: Eduardo L. Montenejo, Mylene M. Bonifacio, Evangeline E. Valverde, Deana N. Pagal (employees), and VFP Management Development Corporation (VMDC), a private management company incorporated in 1990.
- VFP obtained possession and control of an industrial complex in Taguig (VFPIA) through Proclamation No. 192 in 1967.
- VMDC was engaged through a Management Agreement dated January 4, 1991, to assume exclusive management and operation of VFPIA in exchange for 40% of lease rentals.
- Respondents Montenejo, et al. were hired by VMDC as employees, holding various positions such as vice-president of operations, accountant, cashier, and accounting clerk.
- The Management Agreement had an initial five-year term, renewable for another five years. It was extended until 1998, then on a month-to-month basis afterward.
- On November 1999, VFP passed a board resolution terminating the Management Agreement effective December 31, 1999.
- VMDC complied, turning over possession of all properties necessary for VFPIA’s operation to VFP, and issued a memorandum terminating its employees effective January 31, 2000.
- Montenejo, et al. were dismissed on January 31, 2000, with separation pay paid by VMDC.
Nature of the Complaint and Initial Proceedings
- Montenejo, et al. filed a complaint for illegal dismissal, money claims, and damages against both VMDC and VFP.
- VMDC denied illegal dismissal, asserting lawful termination due to bona fide closure following the end of the Management Agreement.
- VFP maintained it was not the employer and disclaimed liability.
- Labor Arbiter (LA) decision (November 7, 2005):
- Found dismissals valid based on VMDC’s business closure, an authorized cause under the Labor Code.
- Declared Montenejo, et al. as contractual employees tied to the term of the Management Agreement, entitling them to unpaid salaries and separation pay until January 4, 2001 (expiry of the potential maximum term).
- Ordered VFP and VMDC to pay salaries, separation pay recalculated with January 4, 2001 as last day, and proportionate 13th month pay.
- Denied damages due to no proof of bad faith.
- Held VFP and VMDC jointly liable based on indirect employer status of VFP.
National Labor Relations Commission (NLRC) Ruling
- On appeal, NLRC reversed the LA's findings (May 16, 2007):
- Declared the dismissal of Montenejo, et al. illegal.
- Ruled that Montenejo, et al. were regular employees, not contractual, rejecting the equivalence of employment contracts with the Management Agreement.
- Ordered payment of full backwages, separation pay in lieu of reinstatement, 13th month pay, and service incentive leave pay (SILP).
- Awarded additional cost of living allowance (COLA) for Mylene Bonifacio.
- Affirmed solidary liability of VFP and VMDC, but based on piercing the corporate veil doctrine citing VFP as majority stockholder of VMDC.
- Dismissed damages claim for lack of bad faith evidence.
Court of Appeals (CA) Ruling and Petitioner’s Appeal
- CA affirmed the NLRC decision, denying VFP’s petition for certiora