113. ZAMBRANO, et. al., vs.

PHILIPPINE CARPET

G.R. No. 224099, June 21, 2017

FACTS:

The petitioners averred that they were employees of private respondent Phil Carpet. On January
3, 2011, they were notified of the termination of their employment effective February 3, 2011
on the ground of cessation of operation due to serious business losses. They were of the belief
that their dismissal was without just cause and in violation of due process because the closure of
Phil Carpet was a mere pretense to transfer its operations to its wholly owned and controlled
corporation, Pacific Carpet. They claimed that the job orders of some regular clients of Phil Carpet
were transferred to Pacific Carpet; and that from October to November 2011, several machines
were moved from the premises of Phil Carpet to Pacific Carpet. They asserted that their dismissal
constituted unfair labor practice as it involved the mass dismissal of all union officers and
members of the PHILCEA. In its defense, Phil Carpet countered that it permanently closed and
totally ceased its operations because there had been a steady decline in the demand for its
products due to global recession, stiffer competition, and the effects of a changing market. Based
on the Audited Financial Statements5 conducted by SGV & Co., it incurred losses of ₱4.1M in
2006; ₱12.8M in 2007; ₱53.28M in 2008; and ₱47.79M in 2009. As of the end of October 2010,
unaudited losses already amounted to ₱26.59M. Thus, in order to stem the bleeding, the
company implemented several cost-cutting measures, including voluntary redundancy and early
retirement programs. In 2007, the car carpet division was closed. Moreover, from a high
production capacity of about 6,000 square meters of carpet a month in 2002, its final production
capacity steadily went down to an average of 350 square meters per month for 2009 and 2010.
The petitioners and the Department of Labor and Employment (DOLE) were served written
notices one (1) month before the intended closure of the company. The petitioners ·were also
paid their separation pay and they voluntarily executed their respective Release and
Quitclaim before the DOLE officials. LA dismissed which was affirmed by both the NLRC and CA.

ISSUE:
Were petitioners terminated from employment for an authorized cause?
RULING:
YES. Under Article 298 (formerly Article 283) of the Labor Code, closure or cessation of operation
of the establishment is an authorized cause for terminating an employee. In this case, the LA's
findings that Phil Carpet suffered from serious business losses which resulted in its closure were
affirmed in toto by the NLRC, and subsequently by the CA. It is a rule that absent any showing
that the findings of fact of the labor tribunals and the appellate court are not supported by
evidence on record or the judgment is based on a misapprehension of facts, the Court shall not
examine anew the evidence submitted by the parties.
Even after perusal of the records, the Court finds no reason to take exception from the foregoing
rule. Phil Carpet continuously incurred losses starting 2007, as shown by the Audited Financial
Statements which were offered in evidence by the petitioners themselves. The petitioners, in
claiming that Phil Carpet continued to earn profit in 2011 and 2012, disregarded the reason for
such income, which was Phil Carpet's act of selling its remaining inventories. Notwithstanding
such income, Phil Carpet continued to incur total comprehensive losses in the amounts of
₱9,559,716 and ₱12,768,277 for the years 2011 and 2012, respectively. Further, even if the
petitioners refuse to consider these losses as serious enough to warrant Phil Carpet's total and
permanent closure, it was a business judgment on the part of the company's owners and
stockholders to cease operations, a judgment which the Court has no business interfering with.
The only limitation provided by law is that the closure must be "bona fide in character and not
impelled by a motive to defeat or circumvent the tenurial rights of employees." Thus, when an
employer complies with the foregoing conditions, the Court cannot prohibit closure "just because
the business is not suffering from any loss or because of the desire to provide the workers
continued employment." Finally, Phil Carpet notified DOLE and the petitioners of its decision to
cease manufacturing operations on January 3, 2011, or at least one (1) month prior to the
intended date of closure on February 3, 2011. The petitioners were also given separation pay
equivalent to 100% of their monthly basic salary for every year of service.

ISSUE:

Is respondent liable for unfair labor practice?

RULING:

NO. Article 259 of the Labor Code enumerates the unfair labor practices of employers. The
provisions notwithstanding, only the officers and agents of corporations, associations or
partnerships who have actually participated in, authorized or ratified unfair labor practices shall
be held criminally liable. Unfair labor practice refers to acts that violate the workers' right to
organize. There should be no dispute that all the prohibited acts constituting unfair labor practice
in essence relate to the workers' right to self-organization. Thus, an employer may only be held
liable for unfair labor practice if it can be shown that his acts affect in whatever manner the right
of his employees to self-organize. The general principle is that one who makes an allegation has
the burden of proving it. Although there are exceptions to this general rule, in the case of unfair
labor practice, the alleging party has the burden of proving it. Moreover, good faith is presumed
and he who alleges bad faith has the duty to prove the same. The petitioners miserably failed to
discharge the duty imposed upon them. They did not identify the acts of Phil Carpet which, they
claimed, constituted unfair labor practice. They did not even point out the specific provisions
which Phil Carpet violated. Thus, they would have the Court pronounce that Phil Carpet
committed unfair labor practice on the ground that they were dismissed from employment
simply because they were union officers and members. The constitutional commitment to the
policy of social justice, however, cannot be understood to mean that every labor dispute shall
automatically be decided in favor of labor. In this case, as far as the pieces of evidence offered by
the petitioners are concerned, there is no showing that the closure of the company was an
attempt at union-busting. Hence, the charge that Phil Carpet is guilty of unfair labor practice must
fail for lack of merit.

ISSUE:

Should the doctrine of piercing the corporate veil be applied?

RULING:

NO. A corporation is an artificial being created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized by law or incident
to its existence. It has a personality separate and distinct from the persons composing it, as well
as from any other legal entity to which may be related. Equally well-settled is the principle that
the corporate mask may be removed or the corporate veil pierced when the corporation is just
an alter ego of a person or of another corporation. For reasons of public policy and in the interest
of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.

Although ownership by one corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by themselves and without
more, these circumstances are insufficient to establish an alter ego relationship or connection
between Phil Carpet on the one hand and Pacific Carpet on the other hand, that will justify the
puncturing of the latter's corporate cover. This Court has declared that "mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate personality."
It has likewise ruled that the "existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations." It must be noted that Pacific Carpet was registered
with the Securities and Exchange Commission on January 29, 1999, such that it could not be said
that Pacific Carpet was set up to evade Phil Carpet's liabilities. As to the transfer of Phil Carpet's
machines to Pacific Carpet, settled is the rule that "where one corporation sells or otherwise
transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable
for the debts and liabilities of the transferor. " All told, the petitioners failed to present
substantial evidence to prove their allegation that Pacific Carpet is a mere alter ego of Phil
Carpet.