NEW PANGASINAN REVIEW, INC., PETITIONER, VS. THE NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER RICARDO N. OLAIREZ, PROVINCIAL & CITY SHERIFF EX-OFFICIO ALICIA BRAVO-FABIA, …

New Pangasinan Review versus National Labor Relations Commission

The Case

This is a consolidated case about a defunct newspaper corporation, the Pangasinan Review, and the new corporation that took over its assets, the New Pangasinan Review. The old corporation's employees claimed separation pay after its corporate life expired. The new corporation resisted, arguing that the old corporation no longer existed, that the employees' claims had prescribed, and that it was a separate and distinct corporation not bound by the labor judgment. The case matters because it settles three things a reviewee must know: when a corporate closure entitles workers to separation pay, how a transferee corporation that assumes liabilities becomes a successor-employer bound by a labor judgment, and why a Regional Trial Court may not enjoin the execution of a National Labor Relations Commission decision.

Procedural History

The employees filed a complaint for separation pay, thirteenth month pay, emergency cost of living allowance, and damages before the labor arbiter. The labor arbiter ruled in their favor, ordering payment of separation pay. The old corporation appealed, and the National Labor Relations Commission affirmed the labor arbiter's decision.

When the record reached the arbitration branch for execution, the new corporation refused to participate in the conferences. The labor arbiter then issued a special order commanding the sheriff to collect the judgment amount from the old corporation and the new corporation, by garnishment and levy. The new corporation filed a third party claim, which the labor arbiter denied. The new corporation then filed a petition for certiorari and prohibition with the Supreme Court. It also filed a separate complaint for injunction and damages before the Regional Trial Court of Dagupan City, which issued a temporary restraining order. The Supreme Court consolidated the two petitions, issued its own restraining order, and decided both together.

Facts

The Pangasinan Review was a corporation engaged in printing, bookbinding, and newspaper publishing. Its corporate life expired after fifty years, but it continued operating until the Securities and Exchange Commission advised it that its term had already expired. Its board then resolved to liquidate the company. A splinter group sought to renew the corporate existence, but the Securities and Exchange Commission denied the petition and ordered liquidation.

Acting as a board of liquidators, the old corporation's directors passed a resolution conveying its corporate properties to the New Pangasinan Review, a newly incorporated company, in exchange for shares. The resolution stated that claims against the defunct corporation could be presented as long as the new corporation exists. A deed of assignment was executed the same day, in which the new corporation expressly assumed and undertook to pay all the liabilities and obligations of the old corporation of every kind as appearing in its books.

The employees had earlier sent a written claim for separation pay and allowance to the chairman of the board of liquidators, copy furnished to the labor ministry. When nothing came of it, they filed a formal complaint. The labor arbiter awarded separation pay, and the Commission affirmed. On execution, the labor arbiter ordered collection from both corporations. The new corporation filed a third party claim, which was denied, and the garnished deposits were released and distributed to the employees.

Issues

• Whether or not the proceedings in the labor case were null and void because the action was directed against a defunct corporation and was filed beyond the three year period for liquidation.
• Whether or not the employees were entitled to separation pay, considering that the employer ceased operations by reason of the expiry of its corporate term.
• Whether or not the labor judgment against the defunct corporation could be enforced against the new corporation, which is a distinct and different corporation and was not a party to the case.
• Whether or not the Regional Trial Court had jurisdiction to issue a restraining order against the execution of the labor decision.

Applicable Provisions

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

Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the employment of any employee due to x x x 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 (1) month before the intended date thereof. x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

This is the basis for awarding separation pay even though the closure was not due to serious business losses.

Article 110 of the Labor Code, as amended, provides:

Worker preference in case of bankruptcy. — In the event of bankruptcy, or liquidation of an employer's business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid.

This gives the workers first preference over the assets in the liquidation of the employer's business.

Ruling

On the first issue, the Court held that the proceedings were valid. The employees' letter to the chairman of the board of liquidators operated as an extrajudicial demand within the three year period, and it interrupted the running of the prescriptive period. The Court declined to disturb the findings of fact of the Commission on this point.

On the second issue, the Court held that the employees were entitled to separation pay. The closure was not due to serious business losses or financial reverses, and under Article 283 the employees are entitled to separation pay at the rate of one half month's pay for every year of service, with a fraction of at least six months counted as one whole year. The Court also invoked the worker preference rule in liquidation proceedings.

On the third issue, the Court held that the new corporation is liable. It was an assignee and transferee of the defunct corporation, and it categorically assumed and undertook to pay all the liabilities and obligations of the old corporation of every kind. The resolution itself stated that claims against the defunct corporation may be presented as long as the new corporation exists. The Court agreed that the new corporation had become the successor-employer of the employees, and that it was not denied due process because it was notified of the conference but refused to participate.

On the fourth issue, the Court held that the Regional Trial Court acted without jurisdiction and committed grave abuse of discretion in denying the motion to dismiss. The Regional Trial Court is not superior to but equal in rank with the National Labor Relations Commission, and courts cannot enjoin the execution of a judgment rendered by the Commission. The Court also found the new corporation guilty of forum shopping for filing the injunction case while its petition was pending before the Supreme Court.

Doctrine

A closure or cessation of operations not due to serious business losses or financial reverses entitles the affected employees to separation pay equivalent to one month pay or at least one half month pay for every year of service, whichever is higher, with a fraction of at least six months counted as one whole year. This is the rule of Article 283.

In the liquidation of an employer's business, workers enjoy first preference as regards their wages and other monetary claims, and these are paid in full before the claims of the government and other creditors. This is the rule of Article 110.

A corporation that acquires the assets of another and expressly assumes all its liabilities becomes a successor-employer and is bound by the labor judgment against the defunct corporation. A Regional Trial Court has no jurisdiction to enjoin the execution of a decision of the National Labor Relations Commission, because the two courts are of equal rank.

Disposition

In the first petition, the Commission's decision was affirmed and the petition was dismissed, with the restraining order set aside. In the second petition, the writ of certiorari was granted and the injunction case before the Regional Trial Court was ordered dismissed for lack of jurisdiction, with double costs against the new corporation.

Remember This

The single line to memorize: a closure not due to serious business losses still obligates the employer to pay separation pay, and a transferee that assumes all liabilities becomes the successor-employer bound by the labor judgment. Examiners like to use this case on separation pay for corporate closure, successor-employer liability, and the rule that a Regional Trial Court cannot enjoin the execution of a National Labor Relations Commission decision.