ABS-CBN BROADCASTING CORPORATION, PETITIONER, VS. HONORATO C. HILARIO, SUBSTITUTED BY GLORIA Z. HILARIO, AND DINDO B. BANTING, RESPONDENTS.

ABS-CBN Broadcasting versus Hilario

The Case

This is a labor case about a television network that was held solidarily liable with its own service contractor for the illegal dismissal of two long-time workers. ABS-CBN Broadcasting Corporation, the petitioner, asked the Supreme Court to reverse the finding that it and Creative Creatures, Incorporated were a single entity, and to declare that the closure of Creative Creatures was a valid exercise of management prerogative. The case matters because it gathers in one decision the three requisites of a valid closure of business under the Labor Code, the doctrine of piercing the veil of corporate fiction in its alter ego form, and the rule that factual findings of labor tribunals, when supported by substantial evidence, bind the Supreme Court.

Procedural History

The two workers filed a complaint for illegal dismissal, illegal deduction, and non-payment of meal allowances against Creative Creatures and ABS-CBN before the arbitration branch of the National Labor Relations Commission. The Labor Arbiter found them illegally dismissed and ordered both respondents to reinstate them and to pay backwages and allowances jointly and severally. The National Labor Relations Commission affirmed, holding that ABS-CBN and Creative Creatures should be treated as a single entity because ABS-CBN controlled the affairs of Creative Creatures, and it directed ABS-CBN to immediately reinstate the complainants. ABS-CBN elevated the matter to the Court of Appeals, which partially granted the petition. The Court of Appeals affirmed the finding of illegal dismissal but modified the award, ordering that the amounts the workers had received by way of quitclaims be deducted from their monetary award, computed from the time of their termination up to their actual reinstatement. ABS-CBN moved for reconsideration, and the Court of Appeals denied the motion. ABS-CBN then filed with the Supreme Court a petition for review on certiorari under Rule 45 of the Rules of Court.

Facts

ABS-CBN is a domestic corporation engaged in the broadcasting of television and radio content. Its Scenic Department originally handled the design, construction, and provision of props and sets for its shows. Later, ABS-CBN engaged independent contractors for these needs, one of whom was Edmund Ty. In 1995, Creative Creatures was formed and incorporated by Ty together with several officers of ABS-CBN, namely Eugenio Lopez the Third, Charo Santos-Concio, Felipe Yalong, and Federico Garcia. It was organized to conceptualize, design, and construct sets and props for television programs and similar projects. Around the time of its incorporation, the Scenic Department of ABS-CBN was abolished, and Creative Creatures was engaged to provide props and set design for its shows.

Honorato Hilario was hired by Creative Creatures in March 1995 as a Designer and rose to become Set Controller. Dindo Banting was engaged in April 1999 as a Metal Craftsman and became Assistant Set Controller. In June 2003, Ty decided to retire as Managing Director, intending to organize his own company, and he entered into a Consultancy Agreement with ABS-CBN for set design and production setting. Without Ty, and with Creative Creatures merely breaking even, its Board of Directors decided to close the company by shortening its corporate term up to October 31, 2003. In August 2003, Ty organized Dream Weaver Visual Exponents, Incorporated, engaged in the same line of business, and ABS-CBN engaged its services.

On September 4 and September 5, 2003, Banting and Hilario received notices that Creative Creatures would cease operations effective October 5, 2003. Hilario received a total of 118,205.87 pesos and Banting received 66,383.54 pesos, and both executed release and quitclaims in favor of Creative Creatures. The list of terminated employees was submitted to the Department of Labor and Employment, and notices of cessation were filed with the Bureau of Internal Revenue and the Home Development Mutual Fund. On September 24, 2003, the two workers filed their complaint, claiming that the closure was done in bad faith to circumvent the Labor Code, since Creative Creatures continued operating under the guise of Dream Weaver.

Issues

• Whether or not the termination of the respondents due to the cessation of business operations of Creative Creatures was valid.
• Whether or not ABS-CBN is jointly and severally liable with Creative Creatures for the dismissal of the respondents.
• Whether or not the reinstatement of the respondents is proper under the circumstances.

Applicable Provisions

Article 298 of the Labor Code, formerly Article 283, governs closure of establishment and reduction of personnel. It provides:

Article 298. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operations 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 Department of Labor and Employment at least one month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least one month pay or to at least one month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to at least one month pay or at least one half month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered as one whole year.

This provision supplies the three requisites of a valid closure, and its express exception, a closing made to circumvent the right to security of tenure, is the very ground on which the Court struck down the closure in this case.

Ruling

On the first issue, the Court held that the termination was illegal. From Article 298 it drew three requirements for a valid cessation of business operations: service of a written notice to the employees and to the Department of Labor and Employment at least one month before the intended date; that the cessation of business be bona fide in character; and payment of termination pay amounting to one month pay or at least one-half month pay for every year of service, whichever is higher. Creative Creatures complied with the notice and the payment of termination pay, but it failed to prove that its closure was bona fide. A closure is invalid when there was no genuine closure but mere simulation, and to unmask the employer's true intent the Court considers not only the measures adopted before the purported closure but also the actions taken after it. Here, suspicion arose when Creative Creatures immediately ceased operations upon the retirement of Ty, who then formed a company in the same business. It became evident that the closure was in bad faith when ABS-CBN dropped Creative Creatures, hired Ty as consultant, and then engaged Dream Weaver, which merely transferred and rehired most of the employees of Creative Creatures, to the prejudice of the respondents.

On the second issue, the Court held ABS-CBN jointly and severally liable. The doctrine of piercing the veil of corporate fiction allows a corporation's separate personality to be disregarded so that a corporation and another related corporation are treated as a single entity. The Court quoted its earlier ruling that the doctrine applies in three basic areas: to defeat public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; in fraud cases, or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; and in alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where it is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation. This case falls under the third instance. The Court found that the existence of Creative Creatures was dependent upon Ty and ABS-CBN: the Scenic Department of ABS-CBN was abolished and Creative Creatures was incorporated to cater to its props and set design requirements, transferring most of its personnel; Creative Creatures was a subsidiary incorporated through the collaboration of Ty and the major stockholders and officers of ABS-CBN; it provided services mainly to ABS-CBN and its other subsidiaries; and when Ty organized his own company, ABS-CBN hired him as consultant and eventually engaged Dream Weaver, after which Creative Creatures closed. ABS-CBN clearly exercised control and influence in the management and closure of Creative Creatures, justifying the disregard of their separate corporate personalities.

On the third issue, the Court found no cogent reason to depart from the uniform findings of the labor tribunals and the appellate court, which are supported by substantial evidence. The Court stressed that it is not a trier of facts and will not review factual findings of the lower tribunals, as these are generally binding and conclusive.

Doctrine

First, a valid closure or cessation of business operations under Article 298 of the Labor Code requires three things: written notice to the employees and to the Department of Labor and Employment at least one month before the intended date; a bona fide cessation of business; and payment of separation pay of at least one month pay or at least one-half month pay for every year of service, whichever is higher. Second, a closure is invalid when it is a mere simulation, and bad faith may be unmasked by examining both the measures taken before the closure and the employer's actions after it. Third, the doctrine of piercing the veil of corporate fiction applies in three areas, and under the alter ego exception a parent corporation that controls the management and closure of a subsidiary, which is a mere conduit for its business, may be held solidarily liable with the subsidiary for the illegal dismissal of the subsidiary's employees. Fourth, factual findings of labor tribunals, when supported by substantial evidence, are accorded respect and are generally binding on the Supreme Court.

Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals, holding ABS-CBN jointly and severally liable with Creative Creatures for the illegal dismissal of the respondents, with the quitclaim amounts deducted from the monetary award computed from the time of termination up to actual reinstatement.

Remember This

Memorize the three requisites of a valid closure under Article 298 of the Labor Code, and remember that a closing done to circumvent the right to security of tenure is void even if notice and separation pay are complete. Examiners use this case to test the alter ego exception to the separate corporate personality doctrine in a labor setting, and the rule that the Supreme Court will not disturb the factual findings of labor tribunals supported by substantial evidence.