CONSTRUCTION & DEVELOPMENT CORPORATION OF THE PHILIPPINES, PETITIONER, VS. HON. VICENTE LEOGARDO, JR., ACTING FOR AND IN BEHALF OF THE MINISTER OF LABOR AND EMPLOYMENT, AND NATI…

This case arose from the following antecedents:

In 1971, the Development Bank of the Philippines (DBP, for
brevity) foreclosed the plant of Midland Cement Corporation (Midland, for
brevity), which was mortgaged to it to secure a loan, for its failure to pay
its obligations. In August 1975,
petitioner Construction & Development Corporation of the Philip­pines
(CDCP, for brevity), now a government-controlled corporation, leased the
facilities of Midland from the DBP, which had then acquired the controlling
interest in Midland.

However, due to serious financial reverses, CDCP requested from
DBP the termination of the lease contract and the return of the plant facilities
to the latter. The plant was closed at
the end of business hours on June 30, 1981, but the employees were informed
that they would receive full pay until July 31, 1981.

On July 21, 1981, CDCP
filed with Regional Office No. IV-A, Ministry of Labor and Employment, a
clearance application to terminate the 175 employees of the cement plant
effective August 1, 1981, in view of the termination of its lease agree­ment
with DBP and the closure of business operations on account of serious financial
reverses (RO4-A-Case No. LRD-CA-7-718 & 719-81). All affected employees were duly advised.

Private respondent
National Mines and Allied Workers Union (NAMAWU-MIF) opposed the application
for clearance alleging that it had a Collective Bargaining Agreement with
petitioner; that the action of petitioner was a move to bust the union as
termination of the lease contract is
not a cause for termination of
employment; that DBP should absorb the workers in the same manner that
petitioner did when it took over the cement plant; that pursuant to Article
1311 of the Civil Code,^[1] the CBA is binding not only on CDCP and
NAMAWU-MIF, but also on their successors-in-interest and/or
assigns.

On July 29, 1981, NAMAWU-MIF filed a Motion to implead the DBP alleging that
since DBP was the actual owner of the cement plant, it was the proper
party to safeguard the security of tenure of the 175 employees.

CDCP admitted that it had
an existing CBA with NAMAWU­-MIF, which was effective up to June 30, 1982, but
alleged that it had to cease operating the cement plant because of substantial
losses in operational and maintenance expenses resulting from frequent
shutdowns caused by lack of raw materials, and bunker fuel, the strike declared
by NAMAWU-MIF on March 4, 1981, which lasted up to June 11, 1981, and other causes beyond its control; that its delinquency in
the payment of lease rentals alone amounted to P22,146,649.05; that upon the
turn-over of the plant facilities to DBP, its employer-employee relationship
with the 175 employees was extinguished.

In a letter dated August
13, 1981, addressed to the Minister of Labor and Employment, DBP, through its
Acting Chairman, expressly committed itself on a best-effort basis, to require
the next lessee to absorb the existing personnel of the cement plant under CDCP
and to assume any existing employment contract with them.

On August 27, 1981, the Regional Director granted the clearance
to terminate the 175 employees. NAMAWU-MIF appealed to the Ministry of Labor and Employment (MOLE) on
the ground of grave abuse of discretion in granting the clearance applica­tion
and in failing to award separation pay to the affected employees. MOLE, on April 27, 1983, modified the Order
of the Regional Director of August 27, 1981 and held:

“Since the closure of the cement division of CDCP was due to
the termination of the lease contract brought about by serious business
reverses and it appearing that CDCP did not totally cease operations the herein
175 oppositors should be entitled to separation pay equivalent to one-half month
for every year of service.

“WHEREFORE, the order appealed from is hereby affirmed with
modification in that applicant Construction and Development Corporation of the
Philippines is hereby ordered to pay the herein 175 affected employees
separation pay equivalent (to) one-half month’s salary for every year of
service.

“SO ORDERED.”^[2]

We resolved to consider respondents’ Comments as their respective
Answers and to give due course to the Petition but dispensed with the
submission of memoranda, issues having been joined.

The issue for resolution is whether or not, under the
environmental circumstances, the 175 employees whose services were terminated
by petitioner are entitled to separation pay. Petitioner upholds the negative view on the ground that the facts of the
case do not show that there was a retrenchment in operations but a total
closure of the operations of the ce­ment plant, for which reason, separation
pay is not a requirement. The Solicitor
General supports petitioner’s position contrary to that of the Minister of
Labor.

We sustain the challenged Order of MOLE.

In the case of Wenceslao
vs. Zaragoza, Inc.^[3]
applying the Termination Pay Law^[4], it
was held: “What the law considers as a just cause for terminating
an employment without a definite period
is the closing or cessation of operation of the establishment or enterprise of the
employer and not merely the closing or
cessation of operation of any particular division or department of the employer’s business.” In
that case, separation pay was
given because there was no closing or cessation of the entire business but only
the closing of a particular division of the employer’s business.

It is true that in the later case of Phil. American Embroideries, Inc. vs. Embroidery &
Garment Workers Union^[5], it was
held that “the closure of its department where the members of respondent union
were employed was not an act of discri­mination
or a means of dismissal but rather the
result of con­tinued losses in operations – a ground that is entirely
justi­fied by law.” We cannot look to that case for the necessary precedent, however, because the controversy
therein revolved only around the
question of whether or not the employer was guilty of unfair labor
practice and did not touch on the
question of
separation pay, besides the fact that it was decided before the
enactment of the present Labor Code which now distinguishes between closure of
an establishment and retrenchment.

At bar, what is
involved is the closure of a particular division or department under the CDCP
umbrella of organizations due to the termination of a lease contract brought
about by serious business reverses. This constitutes retrenchment by, and not closure of, the enterprise or
the company itself as CDCP has
not totally ceased operations but is still an on-going concern. Section 2, Article XI of the Collective
Bargaining Agreement clearly provides that in case of retrenchment initiated by
the employer to prevent losses, employees are entitled to termination pay.

“Section 2. Where the
termination of employment is due to retrenchment initiated by the employer to prevent losses or
other similar causes, or where the employee suffers from a disease and his
continued employment is prohibited by law or is prejudicial to his health or to the health of his
co-employees, the employee shall be entitled to termination pay equivalent at
least to his one month salary, or to one-half month pay for every year of
service, whichever is higher, a fraction of at least six (6) months being
considered as one whole year.”

Article 284 of the Labor Code, as amended by BP Blg. 130,
likewise provides for separation pay in cases of retrenchment to prevent
losses.

“Art. 284. 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 or 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 lest one (1) month before the intended date thereof. xxx x xxx xxx xxx xxx xxx 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 (½) 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.”

The financial setbacks reportedly suffered by CDCP have to be
considered in the light of its agreements and the applicable law and
jurisprudence and balanced with the interests of labor that stand to suffer more because of their meager
resources and limited wherewithal
to cushion themselves against
the deleterious effects of unemployment.

ACCORDINGLY, the challenged Order, dated April 27, 1983, of the Ministry of Labor and Employment
is hereby upheld.

No costs.

SO ORDERED.

Teehankee, (Chairman), Plana, Relova, and Gutierrez, Jr., JJ., concur.

^[1]
“Art. 1311. Contracts take effect
only between the parties, their assigns and heirs, except in case where the rights
and obligations arising from the contracts are not transmissible by their
nature, or by stipulation or by provision of law. x x x x x x

^[2]
p. 19, Rollo.

^[3]
24 SCRA 554 (1968).

^[4]
Republic Act No. 1052, as amended by R.A. 1787.

^[5]
26 SCRA 634 (1969).