ENRIQUE RAZON, JR, AND METROPORT SERVICES, INC., PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION AND NICOLAS S. GARZOTA, RESPONDENTS.

Razon versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by Enrique Razon, Junior and Metroport Services, Incorporated against the National Labor Relations Commission and Nicolas Garzota. The petitioners ask the Supreme Court to set aside the Commission's resolution affirming the Labor Arbiter's award of retirement pay, loyalty bonus, and cash conversion of accrued vacation leave to Garzota, who had been the company's chief accountant. The case matters because it settles two questions every labor and corporation lawyer must know: whether an employer's contractual discretion over retirement may be exercised arbitrarily, and when a corporate officer may be held solidarily liable with the corporation for a dismissal tainted with bad faith.

Procedural History

Garzota filed a complaint for illegal dismissal and unpaid retirement benefits before the Labor Arbiter. The Labor Arbiter ruled in his favor, ordering Metroport Services, Incorporated, or Enrique Razon, Junior in case of the company's failure to pay, to pay retirement pay of 60,000 pesos, loyalty bonus of 60,000 pesos, and cash conversion of accrued vacation leave of 11,400 pesos, for a total of 131,400 pesos. The petitioners appealed to the National Labor Relations Commission, which sustained the Labor Arbiter in its resolution of August 28, 1987. The petitioners then came to the Supreme Court on a petition for certiorari, contending that the Commission gravely abused its discretion.

Facts

Since 1966, Garzota had been employed by the petitioner company, then known as E. Razon, Incorporated. In 1979, control of the company passed to Alfredo Romualdez, who renamed it Metroport Services, Incorporated. After the February Revolution, in 1986, the petitioners regained control of the company.

On February 28, 1986, because of failing health and having qualified for compulsory retirement at age 65, Garzota, then the company's chief accountant, submitted a letter-request for retirement. The petitioners withheld action on the request pending completion of an audit of the company books by the accounting firm of Sycip, Gorres and Velayo. In the course of that audit, the petitioners discovered that several books of account allegedly in Garzota's custody were missing, including general ledgers, cash disbursement and receipt books, bills registers, cash and journal vouchers, and sales registers covering various years from 1981 to 1984.

On March 19, 1986, Enrique Razon, Junior issued a memorandum terminating Garzota's services on the ground of loss of trust and confidence. Meanwhile, the Philippine Ports Authority awarded the management and operation of arrastre services at the South Harbor to a new company, Marina Port Services, Incorporated, which hired Garzota. It later appeared that a fire on November 30, 1982 had destroyed records, books, vouchers, and general ledgers in the petitioners' warehouse, and that whatever was salvaged was subsequently lost in the flood of July 25, 1985.

Issues

• Whether or not the National Labor Relations Commission gravely abused its discretion in sustaining the grant of retirement benefits to Garzota despite the management discretion clause in the Retirement Plan.
• Whether or not Garzota's employment with Marina Port Services, Incorporated amounted to an implied withdrawal of his intention to retire.
• Whether or not Enrique Razon, Junior may be held solidarily liable with Metroport Services, Incorporated for the payment of the retirement claim.

Applicable Provisions

Article II, paragraph B of the Retirement Plan provides:

Any official and employee who is 65 years old, and upon discretion of management, shall be qualified or subject to compulsory retirement from the company with benefits as provided in this plan.

This is the clause the petitioners invoke to justify withholding the retirement benefits, and the Court construes it as a limitation on, not a license for, arbitrary management action.

Section 31 of the Corporation Code provides:

Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members or other persons.

This is the basis for holding Enrique Razon, Junior solidarily liable with the corporation.

Ruling

On the first issue, the Court held that the words upon the discretion of management are not synonymous with absolute or unlimited discretion. Management discretion may not be exercised arbitrarily or capriciously, especially in the implementation of a retirement plan. Upon acceptance of employment, a contractual relationship was established giving the employee an enforceable vested interest in the retirement fund, and the retirement scheme became an integral part of his employment package. Having rendered twenty years of service, Garzota had acquired a vested right to the retirement fund, which could be withheld only upon a clear showing of good and compelling reasons. The Court found no such reason. The reported loss of confidence rested on the disappearance of books that a fire in 1982 and a flood in 1985 had destroyed, and the petitioners dismissed Garzota abruptly without giving him a chance to explain. There was not the slightest pretense at fair play, and the dismissal was marked by arbitrariness and lack of due process.

On the second issue, the Court held that the fact that Garzota sought employment elsewhere should not hinder him from claiming his retirement benefits. At 65 years, he had reached the mandatory age for retirement and was qualified to retire. The Court noted the irony that instead of enjoying the fruits of his retirement, he was forced to seek reemployment for his survival.

On the third issue, the Court ruled in the affirmative. Under Section 31 of the Corporation Code, a director or officer guilty of bad faith in directing the affairs of the corporation is liable jointly and severally for the resulting damages. The manner of dismissal by Enrique Razon, Junior smacked of high-handedness, caprice, and arbitrariness. No regard was given to Garzota's long and faithful service, and no opportunity was afforded him to explain the loss imputed to him through a properly conducted investigation. That willingness and alacrity to terminate his services without regard to his service and without due process sufficed to taint the act with bad faith.

Doctrine

First, a management discretion clause in a retirement plan does not confer absolute or unlimited discretion. Discretion must be exercised reasonably, and a retirement plan accepted upon employment creates a vested contractual right that may be withheld only upon a clear showing of good and compelling reasons. Second, an employee who has reached the compulsory retirement age and rendered the required service is entitled to retirement benefits notwithstanding reemployment elsewhere. Third, a corporate officer who acts in bad faith in directing corporate affairs, as by dismissing an employee arbitrarily and without due process, is solidarily liable with the corporation under Section 31 of the Corporation Code.

Disposition

The Supreme Court affirmed the assailed resolution of the National Labor Relations Commission in its entirety, with costs against the petitioners, so that Garzota recovered his retirement pay, loyalty bonus, and cash conversion of accrued vacation leave, with Enrique Razon, Junior held solidarily liable.

Remember This

Memorize the line that management discretion is not absolute or unlimited discretion, and that a retirement plan creates a vested contractual right. Examiners use this case to test the limits of management prerogative in retirement and the solidary liability of corporate officers for bad faith dismissals under Section 31 of the Corporation Code.