MAJESTIC AND REPUBLIC THEATERS EMPLOYEES’ ASSOCIATION (PAFLU), PETITIONER, VS. COURT OF INDUSTRIAL RELATIONS, ET AL., RESPONDENTS.

Majestic and Republic Theaters Employees' Association versus Court of Industrial Relations

The Case

This is a petition for review brought by the Majestic and Republic Theaters Employees' Association, a labor union affiliated with the Philippine Association of Free Labor Unions, against the Court of Industrial Relations and the corporations that owned and operated the two theaters. The union asks the Supreme Court to reverse the industrial court's finding that the employers were not guilty of unfair labor practice when, shortly after signing a two-year collective bargaining agreement, they sold the theaters, terminated their leases, and left the employees without work. The case matters because it fixes the rule that a sale or transfer of an enterprise, done in secrecy and in disregard of a subsisting collective bargaining agreement, can itself amount to unfair labor practice and a lockout, and that the former employers cannot escape their commitments by interposing a change of ownership.

Procedural History

The union filed a complaint for unfair labor practice with the Court of Industrial Relations, naming as respondents L. C. Eugenio and Company, Republic Theater Enterprises, and Majestic Theater, Inc. An attempt to include the new owner, Goodwill Trading Company, Inc., and the new operator, Rema, Inc., failed because the industrial court ruled that they were not responsible, so an amended complaint was filed excluding them. After trial, the industrial court dismissed the complaint, holding that the respondents were not guilty of unfair labor practice, but it ordered Leonardo C. Eugenio, as president and general manager of the two lessee corporations, to pay the complaining employees one month of separation pay under Republic Act Number 1052 and in line with the pledge he made at the time of the sale. On motion for reconsideration, that decision was affirmed, over the dissent of Judge Jose S. Bautista, concurred in by Judge Baltazar M. Villanueva. The union then interposed the present petition for review before the Supreme Court.

Facts

L. C. Eugenio and Company owned two theaters, the Republic and the Majestic, which it leased to two other corporations, Republic Theater Enterprises and Majestic Theater, Inc. Leonardo C. Eugenio was president and general manager of all three corporations. On the first day of January 1955, the employees of the theaters, members of the union, affiliated with the Philippine Association of Free Labor Unions. Immediately after this affiliation, the lessees dismissed the union's president and vice-president, which precipitated a strike. Nine days later the parties settled and agreed to reinstate the two dismissed officers.

On February 16, 1955, the union and the lessee corporations entered into a collective bargaining agreement to last for two years, retroactive to January 16, 1955. Among its stipulations were that during its effectivity the union would not declare a strike while the lessees would not lock out their employees, that both would use their influence and sincere efforts to observe the agreement in spirit and in letter, and that during its effectivity they would not enter into any contract or make any negotiation or arrangement with any other person or entity for collective bargaining or regarding conditions of employment.

Three months after the agreement was executed, L. C. Eugenio and Company sold the two theaters to Goodwill Trading Company, Inc., and almost at the same time the two lessee corporations agreed to terminate their leases. The new owner in turn leased the theaters to Rema, Inc. On the same date, April 26, 1955, Eugenio wrote the union president informing him of the sale and the termination of the lease, intimating that he had recommended to the new owner the continuance of all employees in their positions, and offering to pay whatever was due them under the law should some not be retained. Early the next morning, after the turnover to Rema, Inc., the new management called all the employees and advised them to sign new applications if they wanted to continue; some signed, others refused and picketed, and those who had been admitted left their posts and joined the picket. About twenty-seven employees lost their jobs.

Issues

• Whether or not the respondent corporations were guilty of unfair labor practice when, shortly after entering into a collective bargaining agreement, they sold the theaters and terminated their leases, thereby locking out the employees.
• Whether or not the sale and the termination of the leases, though evidenced by genuine documents, were made in good faith and free of any intent to defeat the collective bargaining agreement and break up the union.
• Whether or not the respondents may be held liable for back wages corresponding to the remaining period of the collective bargaining agreement.

Applicable Provisions

Article 1700 of the new Civil Code provides:

The relations between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the common good.

This provision anchors the Court's holding that the transfer of the theaters in disregard of the collective bargaining agreement struck at the public interest underlying capital and labor relations.

Section 13 of Republic Act Number 875 provides:

When there is a collective bargaining agreement for a definite period neither party shall terminate or modify such agreement unless a written notice is served upon the other party of the proposed termination at least 30 days prior to the expiry date of the agreement and, in any event, the agreement is to continue in full force and effect with regard to its terms and conditions during the entire period of 30 days.

The Court invoked this provision because no such written notice was given; instead the employees were immediately told that their relationship had ended.

Section 4 of Republic Act Number 875 is the provision under which the Court found the respondents guilty of unfair labor practice, and it is the basis of the award of back wages.

Ruling

On the first issue, the Court reversed the industrial court and held the respondent corporations guilty of unfair labor practice. While it conceded that the sale and the termination of the leases were not shown to be fictitious, it found a chain of circumstances indicating that the transactions were suspicious and not made in good faith. Barely three months after a two-year agreement, the owner sold the theaters and the lessees readily agreed to terminate their leases. The transactions were made in secrecy, at the back of the employees, who were taken by surprise; the buying company had to amend its articles of incorporation even after the sale, and the theaters were speedily leased to an entity that did not yet exist, its incorporation papers being approved only four days after the lease contract. Since the former owner and the two lessee corporations were all under the control and supervision of Leonardo C. Eugenio, the Court concluded that the sale and the termination of the lease were a mere stratagem to avoid the commitments under the collective bargaining agreement, resulting in a lockout and the breaking up of the union.

On the second issue, the Court held that good faith was absent. The readiness with which the lessees consented to the termination of their leases confirmed the design, and the transactions constituted a flagrant violation of the commitments of the lessees under the collective bargaining agreement. The Court stressed that labor contracts are impressed with public interest, and that the transfer of the theaters in utter disregard of the agreement was a direct thrust against the letter and spirit underlying the relation of capital and labor. It also noted that no written notice of termination was served as Section 13 of Republic Act Number 875 requires.

On the third issue, the Court ordered the three respondent corporations, jointly and severally, to pay the locked-out employees their back wages corresponding to the remaining period of the collective bargaining agreement, without prejudice to whatever other action they may deem proper to take.

Doctrine

A sale or transfer of an enterprise, coupled with the termination of leases, done in secrecy and shortly after the execution of a subsisting collective bargaining agreement, is a mere stratagem to avoid the employer's commitments and constitutes unfair labor practice and a lockout. The relations between capital and labor are not merely contractual; they are impressed with public interest, so that labor contracts must yield to the common good, and a transfer in disregard of a collective bargaining agreement is a direct thrust against that public interest. Under Section 13 of Republic Act Number 875, a collective bargaining agreement for a definite period cannot be terminated or modified without written notice served at least thirty days before the expiry date, and it continues in full force during that period. Employers who lock out their employees through such a transfer are liable, jointly and severally, for back wages for the remaining period of the agreement.

Disposition

The Supreme Court reversed the decision of the Court of Industrial Relations, found the three respondent corporations guilty of unfair labor practice under Section 4 of Republic Act Number 875, and ordered them, jointly and severally, to pay the locked-out employees their back wages for the remaining period of the collective bargaining agreement, with costs against the respondents other than the Court of Industrial Relations.

Remember This

The one line to memorize: a sale or transfer of a business made in secrecy and in disregard of a subsisting collective bargaining agreement is a stratagem amounting to unfair labor practice and a lockout. Examiners use this case to test the public-interest character of labor contracts under Article 1700 of the Civil Code and the notice requirement of Section 13 of Republic Act Number 875.