SME Bank Inc. v. De Guzman 4.

03 Right of Succession
G.R. No. 184517 | October 8, 2013

DOCTRINE: In stock sale, it is merely a change of management and not change of employer. Thus, the
employees are not transferred to a new employer, but remain with the original corporate
employer, notwithstanding an equity shift in its majority shareholders.

FACTS:
Elicerio Gaspar and other respondents were employees of SME Bank. Originally, the principal
shareholders and corporate directors of the bank were Eduardo Agustin and Peregrin De Guzman.
However, SME Bank experienced financial difficulties. Hence, they proposed its sale to Abelardo
Samson.
During the negotiation, Samson sent a letter as precondition for the sale of SME Banks Shares of
stock and demanded, (a) the bank should terminate the employees that they were mutually agreed
upon; (b) All retirement benefits of officers, stockholders, and BoD are waived upon consummation
of the sale. Agustin and Deguzman accepted the terms.
The General Manager of the bank persuaded them to resign, with the promise that would be rehired
upon reapplication. His directive was allegedly done on behalf of Samson. Hence, they resigned.
However, after the sale, Gaspar and other employees were not rehired. They demanded the payment
of their separation pays, but it was denied. Hence, they filed a complaint to NLRC.
NLRC found that there was only a mere transfer of shares or a mere change of management. It held
that change of management was not a valid ground to terminate the employees. It further ruled that
Agustin, De Guzman and the Samson Group should be held jointly and severally liable for the
employees separation pay.
Agustin, De Guzman and the Samson Group filed a MR but was denied. Hence, this case.

ISSUE:
WON Samson Group/SME Bank Inc. is liable for the employees separation pay.

HELD:
SME Bank is liable.
SME Bank argues that, there being a transfer of the business establishment, the innocent transferees
no longer have any obligation to continue employing respondent employees. SC held that, there
was no transfer of the business establishment to speak of, but merely a change in the new majority
shareholders of the corporation.
There are two types of corporate acquisitions: asset sales and stock sales.
o Asset sales the corporate entity sells all or substantially all of its assets to another entity.
o Stock sales the individual or corporate shareholders sell a controlling block of stock to
new or existing shareholders.
In the case at bar, the letter agreements show that their main object is the acquisition by the Samson
Group of 86% of the shares of stock of SME Bank. Hence, this case involves a stock sale. Thus,
following the rule in the stock sales, respondent employees may not be dismissed except for just or
authorized cause.
SME Bank cited the case of Manlimos, where the court upheld that, in a stock sale, the buyer in
good faith has no obligation to retain the employees of the selling corporation. This ruling was
expressly REVERSE by the SC and held that the case involves a stock sale. It is error to even
discuss transfer of ownership of the business, as the business did not actually change hands. The
transfer only involved a change in the equity composition of the corporation. The employees are
not transferred to a new employer, but remain with the original corporate employer,
notwithstanding an equity shift in its majority shareholders.