A.C. Ransom Labor Union-CCLU v. National Labor Relations Commission
REVERSALFacts
1. The Antecedents: The underlying dispute originated from a finding by the Court of Industrial Relations (CIR) that A.C. Ransom Philippine Corporation (RANSOM) committed unfair labor practices, specifically interference and discrimination. The CIR ordered RANSOM, its officers, and agents to cease and desist from such practices, declared a strike legal and justified, and mandated the immediate reinstatement of 22 employees with backwages from July 25, 1969, until actual reinstatement, without loss of seniority rights. 2. Procedural History: This Court affirmed the CIR's decision in 1973. Subsequent motions for execution of the backwages, initially computed at P199,276.00 and later recomputed to P164,984.00, were met with RANSOM's opposition due to alleged financial difficulties. RANSOM obtained clearance to cease operations in June 1973. In January 1974, the union alleged that RANSOM's officers had organized a new corporation, Rosario Industrial Corporation (ROSARIO), using the same assets and personnel. Writs of execution against RANSOM were repeatedly unsuccessful. In 1978, the union sought execution against RANSOM's officers and agents personally. Labor Arbiter Tito F. Genilo, in 1980, included seven officers as parties respondent and ordered execution against them. The National Labor Relations Commission (NLRC) modified this, relieving the officers of personal liability. This Court, in a June 10, 1986 decision, set aside the NLRC decision and reinstated the Labor Arbiter's order, limiting personal liability to Ruben Hernandez and other subsequent presidents. Both parties moved for reconsideration. 3. The Petition: The petitioner, A.C. Ransom Labor Union-CCLU, filed a petition for certiorari seeking to overturn the NLRC's modification of the Labor Arbiter's order. The union argued for the piercing of the corporate veil to hold all individual private respondents jointly and severally liable with RANSOM. The private respondents countered that they were not impleaded in the trial court, their personal liabilities were not at issue, and holding Ruben Hernandez personally liable violated due process. The union also filed an urgent motion for a preliminary mandatory injunction to deposit the backwages. This Court, in its resolution, granted the union's motion for reconsideration in part, modifying its June 10, 1986 decision to hold Rosario Industrial Corporation and its officers and agents jointly and severally liable with the surviving private respondents for the backwages, and ordered ROSARIO to reinstate the employees or provide separation pay.
Issue(s)
Whether the corporate veil should be pierced to hold the officers and agents of RANSOM personally liable for the backwages. Whether the NLRC erred in relieving the officers and agents of RANSOM from personal liability, and whether the Supreme Court's prior decision limiting liability to the President was correct. Whether the organization of ROSARIO constituted an evasion of RANSOM's financial obligations. Whether worker preference in case of bankruptcy applies to the proceeds of the sale of RANSOM's assets. What specific relief should be granted, considering the prior computations and the liability of ROSARIO and its officers.
Ruling
The Supreme Court set aside the NLRC decision, reinstated the Labor Arbiter's order, and held Rosario Industrial Corporation and its officers and agents jointly and severally liable with the surviving private respondents for the payment of backwages. Rosario Industrial Corporation was ordered to reinstate the 22 union members or, if not possible, to award them separation pay.
Ratio Decidendi
On the piercing of the corporate veil and personal liability of officers/agents: The Court reiterated that a corporation, as an artificial being, acts through its officers and agents. The CIR Decision, affirmed by the Supreme Court, explicitly held the "officers and agents" of RANSOM liable. The Labor Arbiter merely implemented this final and executory decision by naming specific officers. The NLRC erred in modifying the CIR Decision by relieving these officers of liability, as they were included in the original judgment. The Court emphasized that when the corporate fiction is used to perpetrate fraud, evade obligations, or circumvent statutes, the veil should be pierced. On the NLRC's error and the prior Supreme Court decision: The Court acknowledged that its previous decision limiting liability to the President deviated from the original CIR Decision, which held "officers and agents" liable. The Court clarified that the original CIR Decision, affirmed by the Supreme Court, was the binding pronouncement. Therefore, the officers and agents listed in the Labor Arbiter's order, except those deceased, should be held jointly and severally liable for the payment of backwages. The inclusion of the President as an "employer" was deemed proper, but not exclusive. On the evasion of financial obligations through ROSARIO: The Court found that the establishment of ROSARIO in 1969, while the unfair labor practice case was pending, by the same officers and stockholders of RANSOM, engaged in the same business, using the same facilities, and operating from the same location, was a clear instrument to avoid payment of backwages and reinstatement. This constituted a deliberate and malicious design to evade financial obligations, justifying the piercing of the corporate veil. The Court stated that when the notion of a legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons or merge them into one. On worker preference in case of bankruptcy: The Court affirmed that Article 110 of the Labor Code grants workers first preference as regards wages due them in case of bankruptcy or liquidation, to be paid in full before other creditors. This preference applies even if the employer's properties are encumbered by a mortgage. The Court noted that RANSOM's clearance to cease operations was granted without prejudice to the employees' rights. The sale of RANSOM's machinery and equipment to Revelations Manufacturing Corporation, and the alleged turnover of proceeds to Comtrust, did not extinguish the workers' preferential right. The claim of the heirs of Maximo C. Hernandez, Sr. that they became preferential creditors by paying RANSOM's balance to Comtrust was rejected, as workers' wages enjoy first preference over all other creditors. On the specific relief granted: The Court rejected the Union's plea for the original computation of P199,276.00 or three years' backwages, upholding the P164,984.00 amount. However, it granted the Union's plea to hold ROSARIO and its officers and agents jointly and severally liable with the surviving private respondents. ROSARIO was given the option to reinstate the 22 union members or award them separation pay equivalent to at least one month's pay or one month's salary for every year of service, whichever is higher. The Union's Urgent Motion for a Writ of Preliminary Mandatory Injunction was rendered moot by the decision.
Main Doctrine
The corporate veil may be pierced and officers/agents held personally liable for corporate obligations, particularly backwages, when the corporation is used to perpetrate fraud, evade obligations, or circumvent statutes, and worker preference in bankruptcy applies even against secured creditors.