LABOR CONGRESS OF THE PHILIPPINES (LCP) FOR AND IN BEHALF AND IN REPRESENTATION OF ITS MEMBERS, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, BUN SIT G. CHUNG (ALIAS) CA…

Labor Congress of the Philippines versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by the Labor Congress of the Philippines, for and in behalf of its members, against the National Labor Relations Commission and the private respondents led by Lucky Textile Mills. The petitioners ask the Supreme Court to set aside the Resolution of the National Labor Relations Commission which affirmed the Labor Arbiter's dismissal of their complaints for unfair labor practice, illegal lockout and illegal dismissal. The case matters because it is the Court's clean statement of two rules every labor lawyer must carry: that the closure of an establishment for genuine business losses is a valid exercise of management prerogative under Article 283 of the Labor Code, and that a quitclaim voluntarily executed by employees who were paid separation pay, with the assistance of the Department of Labor and Employment, is a legitimate waiver that binds them.

Procedural History

The individual petitioners filed complaints for unfair labor practice, illegal lockout and illegal dismissal, with prayers for damages and attorney's fees, before the Labor Arbiter. On April 29, 1993, the Labor Arbiter rendered a decision in favor of Lucky, finding that the closure was a valid exercise of management prerogative and that the complainants had failed to prove their causes of action. The petitioners appealed to the National Labor Relations Commission, which on February 28, 1994 issued a Resolution dismissing the appeal for lack of merit and affirming the Labor Arbiter. The Commission denied the petitioners' motion for reconsideration, so the petitioners came to the Supreme Court by petition for certiorari, imputing grave abuse of discretion on the part of the Commission.

Facts

Lucky Textile Mills is a corporation engaged in textile manufacturing in Meycauayan, Bulacan. Since the later part of 1980 it had suffered financial losses, as did most textile companies, because of the Gulf Crisis, a slowdown in production and walkouts. In February 1991, the employees, through their bargaining agent Nagkakaisang Manggagawa sa Lucky, staged a strike to press for the across the board implementation of Wage Order Number RB-III-01. The Labor Arbiter and the Commission both adjudged that strike illegal; it lasted about four months, effectively stopped productive operations, and eventually led to the closure of the company.

As the Labor Code requires, Lucky sent letters dated March 12 and March 15, 1991 to the Department of Labor and Employment and to the union, informing them of the projected closure of operations effective April 18, 1991 due to financial losses and extremely adverse business conditions. On June 13, 1991, Lucky entered into an agreement with the union accepting the closure and the termination of the workers' employment as of April 18, 1991, providing for the lifting of the picket line, the dismantling of barricades, the removal of inventories, and the payment of separation and retirement pay, with the employees signing release forms upon payment. Upon receipt of their separation and retirement pay, all the employees signed the corresponding release papers and quitclaims.

Lucky then tried but failed to sell its factory and equipment. To meet its loan amortizations, it leased its building and equipment to three corporations, Family Textile, New World Textile and Walden Textile Industries. Believing that Lucky had resumed operations, the former employees sought reemployment and reinstatement, but Lucky did not heed them. The petitioners then alleged that Lucky had resorted to union busting, that the three corporations were conduits for its business, and that they had signed the releases under desperate circumstances upon assurances of recall. Lucky answered that severe losses impelled the closure, that it paid separation pay though not obliged to do so, that no one was forced to sign, and that the three corporations are separate and distinct entities with which it has a lessor-lessee relationship.

Issues

• Whether or not the dismissal of all the employees upon the closure of Lucky's business operations was a valid exercise of management prerogative due to severe financial reverses under Article 283 of the Labor Code, or was in reality union busting.
• Whether or not the three other corporations are separate and distinct entities, or mere dummies or conduits of Lucky, such that the veil of corporate fiction should be pierced.
• Whether or not the quitclaims and release papers signed by the employees are valid and binding, or contrary to law, morals and public policy.
• Whether or not the issue of the quitclaims not having been explained to the workers, raised for the first time on appeal, may be considered by the Court.

Applicable Provisions

Article 283 of the Labor Code, as amended, provides:

Article 283. Closure of establishment and reduction of personnel. The Employer may also terminate the employment of any employee due to the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title by serving a written notice on the workers and the Ministry of Labor and Employment at least one month before the intended date thereof.

This is the provision against which the validity of the closure is measured: the employer may close, provided the closure is not for the purpose of circumventing the Title and provided the written notices are served at least one month before the intended date.

Ruling

On the first issue, the Court held that the closure was a valid exercise of management prerogative. The Court was impressed with the factual findings of the Labor Arbiter, affirmed by the Commission, that Lucky was not guilty of unfair labor practice; that the closure was neither discrimination against nor a ploy to dismiss employees but was necessitated by unabated losses; that the workers were forewarned of the impending closure; and that with the assistance of the Department of Labor and Employment they willingly agreed to sign the necessary quitclaims upon payment of their separation and retirement pay, even though Lucky was under no obligation to pay the same under Article 283. Apart from the employees' own affidavits, which are evidently self-serving, there was nothing on record to substantiate the allegation of union busting.

On the second issue, the Court held that the three other corporations are separate and distinct from Lucky and are lessees of its buildings and equipment. From the pertinent articles of incorporation and lease agreements, it could be gleaned unerringly that they are independent entities, and the complainants had not submitted substantial evidence to warrant piercing the veil of corporate fiction.

On the third issue, the Court held that the quitclaims are valid. Although the law looks with disfavor upon quitclaims and releases by employees pressured into signing them by unscrupulous employers minded to evade legal responsibilities, there are legitimate waivers resulting from voluntary settlements of laborers' claims which should be treated and upheld as the law between the parties. The individual petitioners, being members of the bargaining agent which entered into the agreement with Lucky, are bound by its terms; they ratified it by accepting their separation pay and executing the corresponding quitclaims and release papers.

On the fourth issue, the Court refused to consider the argument that the quitclaims, written in English, were not duly explained to the lowly workers, because it was raised for the first time in the present petition. Well-settled is the rule, also applicable in labor cases, that issues not raised below cannot be raised for the first time on appeal; to allow fresh issues on appeal is violative of the rudiments of fair play, justice and due process.

Throughout, the Court rested on the doctrine that factual findings of quasi-judicial agencies such as the Department of Labor and Employment, supported by substantial evidence, are entitled to great respect in view of their expertise, and that National Labor Relations Commission rulings anchored on substantial evidence are accorded not only respect but the stamp of finality, absent a clear showing that the findings are bereft of substantiation or are capricious.

Doctrine

First, the closure or cessation of operation of an establishment is a valid authorized cause for terminating employment under Article 283 of the Labor Code, and the employer's exercise of this management prerogative will be upheld where it is supported by substantial evidence of genuine business losses and where the written notices to the workers and to the Department of Labor and Employment were served at least one month before the intended date, and the closure is not for the purpose of circumventing the provisions of the Title. Second, factual findings of quasi-judicial agencies like the Labor Arbiter and the National Labor Relations Commission, when supported by substantial evidence, are entitled to great respect and finality. Third, not every quitclaim is void: while the law disfavors releases extracted from pressured employees, a legitimate waiver arising from a voluntary settlement of a laborer's claim, such as one executed with the assistance of the Department of Labor and Employment upon receipt of separation pay, is valid and binding as the law between the parties. Fourth, the corporate veil will not be pierced absent substantial evidence that separate corporations are mere dummies or conduits. Fifth, issues not raised below cannot be raised for the first time on appeal.

Disposition

The petition was dismissed and the challenged Resolution of the National Labor Relations Commission was affirmed, with no pronouncement as to costs; Lucky won.

Remember This

Memorize this line: closure of business due to genuine financial losses, with the required notices, is a valid exercise of management prerogative, and a quitclaim voluntarily signed upon receipt of separation pay is a legitimate waiver that binds the employee. Examiners use this case to test the validity of quitclaims and the respect accorded to the factual findings of labor tribunals.