Sarona v. National Labor Relations Commission
REITERATIONFacts
The Antecedents: Petitioner Timoteo H. Sarona was hired by Sceptre Security Agency (Sceptre) in April 1976. On June 20, 2003, he was asked to submit a resignation letter to Sceptre and fill up an employment application form for Royale Security Agency (Royale), allegedly required for a position at Royale. After being in floating status, he was assigned by Royale from July 29, 2003, to August 8, 2003, at Highlight Metal Craft, Inc., using Sceptre's paraphernalia. He was later transferred to Wide Wide World Express, Inc., using Royale's paraphernalia. On September 17, 2003, he was informed his assignment was withdrawn as Royale was allegedly replaced, but he discovered Royale was not replaced. He was again assigned briefly at Highlight Metal from September 22 to 30, 2003. Upon reporting to Royale on October 1, 2003, he was told he would no longer be given assignments per Sceptre's general manager. He filed a complaint for illegal dismissal on October 4, 2003. Procedural History: The Labor Arbiter (LA) found petitioner illegally dismissed and ordered backwages from dismissal to decision promulgation and separation pay based on his one-month tenure with Royale. The LA refused to pierce Royale's corporate veil to include his Sceptre service, citing lack of proof of common ownership and control, and noting Sceptre was a sole proprietorship. The National Labor Relations Commission (NLRC) affirmed the illegal dismissal but limited backwages to three months due to petitioner's short service with Royale. The NLRC dismissed petitioner's attempt to have the corporate veil pierced, as he had not appealed the LA's decision on that point. The Court of Appeals (CA) affirmed the NLRC, denying the piercing of the corporate veil for lack of evidence of common ownership or control. The Petition: Petitioner sought review, arguing that Royale is a continuation or successor of Sceptre, and thus his length of service with Sceptre should be recognized for separation pay and other benefits. He also argued that his backwages should be computed until the finality of the decision, not limited to three months.
Issue(s)
Whether Royale's corporate fiction should be pierced to recognize petitioner's length of service with Sceptre. Whether petitioner's backwages should be limited to three months' salary.
Ruling
The Supreme Court GRANTED the petition, REVERSED and SET ASIDE the CA's decision. It ordered Royale to pay petitioner full backwages and other benefits from October 1, 2003, until the finality of the decision, separation pay computed from April 1976 until the finality of the decision, attorney's fees, moral damages, and exemplary damages. The case was remanded for computation.
Ratio Decidendi
On the issue of piercing the corporate veil: The Court found cogent reason to reverse the CA's findings, holding that Royale is a mere continuation or successor of Sceptre, and fraudulent objectives were behind Royale's incorporation. Evidence showed Aida exercised control over both Sceptre and Royale, taking over Sceptre's operations in 1999 and registering the business name under her name. The petitioner was made to resign from Sceptre and apply for Royale under the impression it was necessary for continued employment, orchestrated by Karen and Cesar, taking advantage of his position and lack of knowledge. The scheme reeked of bad faith and fraud, compelling the merger of Royale and Sceptre as a single entity. The Court emphasized that the act of hiding behind separate personalities to evade liabilities is precisely what the doctrine of piercing the corporate veil seeks to prevent, regardless of whether one entity is a sole proprietorship and the other a corporation. The fact that Sceptre and Royale shared the same principal place of business, officers, and employees, and that Royale claimed a right to the cash bond posted with Sceptre, further supported the conclusion that Royale was a mere subterfuge for Aida, who sought to avoid personal liability as the owner of Sceptre. On the computation of backwages: The Court disagreed with the limitation of backwages to three months, stating that backwages are a remedy to recover what an employee has lost due to unlawful dismissal. The primordial consideration is the income that should have accrued from the time of dismissal up to reinstatement or finality of the decision, and the length of service prior to dismissal is inconsequential. Citing Bustamante, et al. v. NLRC, the Court clarified that if reinstatement is no longer possible, backwages should be computed from the time of illegal dismissal until the decision becomes final. Therefore, petitioner is entitled to full backwages computed from October 1, 2003, until the finality of the decision, with the amount already received to be deducted.
Main Doctrine
The corporate veil may be pierced when it is used as a shield for fraud, illegality, or inequity, or when a corporation is merely an alter ego or business conduit of another entity, even if one is a sole proprietorship and the other is a corporation, provided there is evidence of common control and misuse of the corporate form to evade legal obligations or perpetrate fraud.