JAIME PABALAN AND EDUARDO LAGDAMEO, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS, ET AL., AND THE SHERIFF OF THE NATI…

Pabalan versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by Jaime Pabalan and Eduardo Lagdameo, officers of Philippine Inter-Fashion, Incorporated, against the National Labor Relations Commission, the labor arbiter, and the complaining workers. The workers had sued the corporation for illegal transfer and illegal dismissal, and the labor arbiter held the two officers jointly and severally liable with the corporation for back wages and other benefits. The case matters because it draws the line between the corporation's separate personality and the personal liability of its officers, and it tells us exactly when that corporate veil may be pierced in labor cases.

Procedural History

Eighty-four workers of Philippine Inter-Fashion filed a complaint with the labor arbiter for illegal transfer and illegal dismissal, demanding reinstatement, back wages, living allowance, thirteenth month pay, and other benefits. After several resettings and the submission of position papers, the complainants, with leave of the labor arbiter, filed a supplemental position paper impleading the petitioners as officers of the corporation. The labor arbiter rendered a decision ordering the corporation and its officers Pabalan and Lagdameo to reinstate sixty-two complainants and to pay them, jointly and severally, back wages and other benefits.

The petitioners moved for reconsideration before the First Division of the National Labor Relations Commission, which affirmed the appealed decision and dismissed the appeal for lack of merit. The petitioners then came to the Supreme Court on a petition for certiorari with a prayer for a temporary restraining order. The Court initially dismissed the petition for insufficiency in form and substance, and denied reconsideration, but later set aside those resolutions, required a comment, and issued a temporary restraining order. That order was later lifted when the petitioners failed to file the required bond.

Facts

On October 20, 1987, eighty-four workers of Philippine Inter-Fashion, Incorporated filed a complaint against the corporation for illegal transfer simultaneous with illegal dismissal without justifiable cause, in violation of the Labor Code provisions on security of tenure and of Batas Pambansa Blg. 130. The corporation was notified of the complaint and of the hearings, but several hearings were reset because the respondents failed to appear. Counsel for the respondents eventually entered his appearance and was given time to file a position paper, which the corporation filed on January 22, 1988.

On May 5, 1988, with leave of the labor arbiter, the complainants filed a supplemental position paper impleading the petitioners as officers of the corporation, on account of their alleged illegal transfer to a new firm. On July 13, 1988, the labor arbiter rendered a decision ordering the corporation and its officers, Jaime Pabalan and Eduardo Lagdameo, to reinstate sixty-two complainants and to pay them, jointly and severally, back wages and other benefits computed on the latest minimum wage law at the time of dismissal.

The petitioners sought reconsideration before the National Labor Relations Commission, which affirmed the decision and dismissed the appeal for lack of merit. The Commission invoked the ruling in A.C. Ransom Labor Union versus National Labor Relations Commission, holding that liability for illegal termination extends not only to the corporation but also to its responsible officers acting in the interest of the employer. The petitioners then elevated the matter to the Supreme Court.

Issues

• Whether or not the labor arbiter and the National Labor Relations Commission acquired jurisdiction over the persons of the petitioners, and whether or not the petitioners were deprived of due process.
• Whether or not the petitioners, as officers of the corporation, may be held jointly and severally liable with the corporation for its liability to the dismissed employees.

Applicable Provisions

The decision does not quote a specific statutory text; it applies the settled rule on the separate personality of corporations and the doctrine on piercing the corporate veil. The rule, as stated by the Court, is that a corporation is vested by law with a personality separate and distinct from the persons composing it, including its officers. The Court also relied on the doctrine that the legal fiction may be disregarded when the corporate entity is used to perpetrate fraud, an illegal act, or to evade an existing obligation, and it applied this doctrine to the labor context, where the shield of corporate fiction is pierced when it is deliberately and maliciously designed to evade financial obligations to employees.

Ruling

On the first issue, the Court held that the grounds were devoid of merit. The record showed that while originally it was the corporation which was impleaded as respondent before the labor arbiter, the petitioners also appeared in their behalf through counsel. When the supplemental position paper was filed, the petitioners were impleaded as respondents, and they filed an opposition as well as their own supplemental position papers. They were therefore properly served with summons and were not deprived of due process.

On the second issue, the Court held that the petitioners could not be held jointly and severally liable with the corporation. The settled rule is that the corporation has a personality separate and distinct from the persons composing it, including its officers. A company manager acting in good faith within the scope of his authority in terminating the services of employees cannot be held personally liable for damages. As a general rule, officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority.

The Court acknowledged that the legal fiction may be disregarded, quoting its own ruling:

This finding does not ignore the legal fiction that a corporation has a personality separate and distinct from its stockholders and members, for, as this Court had held where the incorporators and directors belong to a single family, the corporation and its members can be considered as one in order to avoid its being used as an instrument to commit injustice, or to further an end subversive of justice.

The Court also quoted the rule that the veil is lifted when the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. But in this case, the complainants did not allege or show that the petitioners, as officers, deliberately and maliciously designed to evade the financial obligation of the corporation to its employees, or used the transfer of the employees as a means to perpetrate an illegal act or as a vehicle for the evasion of existing obligations, the circumvention of statutes, or to confuse the legitimate issues.

The Court distinguished the A.C. Ransom case invoked by the Commission. There, the corporation was a family corporation, and during the strike the members of the family organized another corporation to which all the assets of the first were transferred to continue its business, in order to avoid payment of its obligations to its employees. In that case the president was held personally liable together with the corporation. Not one of those circumstances was shown to be present here. Hence the petitioners could not be held jointly and severally liable with the corporation.

Doctrine

A corporation is vested by law with a personality separate and distinct from the persons composing it, including its officers. As a general rule, officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. The legal fiction of separate personality may be disregarded, and the corporate veil pierced, when the corporate entity is used to perpetrate fraud or an illegal act, to evade an existing obligation, to circumvent statutes, or to confuse legitimate issues. In the labor context, the shield of corporate fiction is pierced when it is deliberately and maliciously designed to evade financial obligations to employees. The burden is on the complainant to allege and show these circumstances; absent such a showing, the officers cannot be held jointly and severally liable with the corporation for the latter's obligations to its employees.

Disposition

The petition was granted, and the resolution of the National Labor Relations Commission was modified by relieving the petitioners of any liability as officers of Philippine Inter-Fashion, Incorporated, holding that the liability shall be solely that of the corporation, with no costs.

Remember This

Memorize this line: officers of a corporation are not personally liable for their official acts unless they exceeded their authority, and the corporate veil is pierced in labor cases only when it is deliberately and maliciously designed to evade financial obligations to employees. Examiners like to use this case to test the limits of the A.C. Ransom doctrine and the requirements for piercing the corporate veil in labor disputes.