Central Azucarera de Danao v. Court of Appeals

Central Azucarera de Danao v. Court of Appeals 137 SCRA 295 (1985)

Business Enterprise Transactions

Facts:

·         Private respondents were among the regular and permanent employees of Central Danao, owner-operator of a sugar mill. On July 7, 1961, Central Danao sold its sugar mill properties and other assets to DADECO.

·         Although the document of sale made no express mention of the continued employment status of the old employees of Central Danao, Dadeco however hired Central Danao's regular and permanent employees but in accordance with its own hiring and selection policies.

·         During the period of their new employment with Dadeco, Nonelon Bana-ay was terminated on December 15, 1961; Gorgonio Palma on July 10, 1966, and Jose Cosculluela, on February 1, 1967.

·         As a consequence thereof, they filed separate complaints for recovery of termination pay with damages against Dadeco and Central Danao alleging that Dadeco maliciously and fraudulently dismissed them without justifiable cause or any advance notice of separation.

·         Dadeco denied liability for termination pay, asserting lack of cause of action since Dadeco was not their employer for the period in question. The liability for the termination pay corresponding to complainants' years of employment until the date of sale on July 7, 1961 should be shouldered by Central Danao, private respondents' previous owner and employer.

·         On the other hand, Central Danao denied liability claiming that the assets of Central Danao had already been sold to Dadeco pursuant to the Deed of Sale of July 7, 1961; and that at the time of their alleged termination, Dadeco was already their employer. They were absorbed, re-employed and in fact, continued working in the sugar mill upon Dadeco's takeover of the management and operation.

·         RTC ruled in favor of the complainants ordering Central Danao to pay private respondents. Complaints against DADECO were dismissed. CA affirmed RTC’s decision. Hence, this petition.

Issue: Whether a change of ownership or management of an establishment or corporation by virtue of the sale or disposition of all or substantially all of properties and assets operates to insulate the selling corporation (Central Danao) from its obligation to its employees under the Termination Pay Law.

Held: YES. Central Danao liable. Decision affirmed.

·         Change of ownership or management of a business establishment or enterprise is not one of the just causes enumerated by the Termination Pay Law to terminate employment without a definite period. Neither can it be construed as synonymous with nor analogous to closing or cessation of operation of an establishment or enterprise contemplated under par. (a), Section 1, R.A. 1052, as amended by R.A. 1787. The Court has interpreted strictly "closing or cessation of operation of the establishment or enterprise" against the employer.

·         The rule has been laid down that the sale or disposition must be motivated by good faith as an element of exemption from liability. Indeed, an innocent transferee of a business establishment has no liability to the employees of the transferor to continue employing them. Nor is the transferee liable for past unfair labor practices of the previous owner, except, when the liability therefor is assumed by the new employer under the contract of sale, or when liability arises because of the new owner's participation in thwarting or defeating the rights of the employees.

·         The most that the purchasing company may do, for reasons of public policy and social justice, is to give preference to the qualified separated employees of the selling company, who in their judgment are necessary in the continued operation of the business establishment. In the instant case, some of the employees were rehired anew by Dadeco, their new employer.

·         The records also reveal that the negotiations for the sale of the assets and properties of Central Danao to Dadeco were held behind the back of the employees who were taken by surprise upon the consummation of the sale. They were not formally notified of the impending sell-out to Dadeco and its attendant consequences with respect to their continued employment status under the purchasing company.

·         In Philippine Refining Company, Inc. vs. Garcia, this Court, speaking thru Justice J.B.L. Reyes, stated thus: "Except where other applicable statutes provide differently, it is not the cause for the dismissal but theemployer's failure to serve notice upon the employee that renders the employer answerable to the employee for termination pay."

·         By way of reminder, employers should exercise caution and care in dealing with its employees to prevent suspicion that the adoption of certain corporate combinations such as merger or consolidation or outright sale or disposition of assets is but a scheme to evade payment of termination pay to its employees.

·         Regarding the contention of laches.

o   Central Danao cannot take refuge under the equitable doctrine of laches to shield itself from an obligation created by law, R.A. 1787 which, undoubtedly, is a social legislation intended to protect the workingman.

o   From the time of the enactment of its predecessor, R.A. 1052, it is a matter of public policy to accord protection to the workingman once the requirements of the law are not complied with. Since this is an obligation created by law, and as correctly ruled by the then Court of Appeals, Article 1144(2) of the New Civil Code applies.

o   The action to enforce compliance with the obligation to pay termination pay may be instituted within the period of 10 years from the time the right of action accrues.

Notes:

·         Under the Termination Pay Law—then enforced prior to the effectivity of the New labor Code on November 1, 1974—an employee may be terminated with or without just cause.

o   If there is just cause, the employer is not required to serve any notice nor pay termination pay to employees concerned.

o   If the termination -is without just cause, the employer must serve notice to the employee; otherwise, the employer is obligated to pay termination pay, except where other applicable statutes provide a different remedy as in unfair labor practice.

The purpose of the Termination Pay Law, as a regulatory measure, is to give the employer the opportunity to find replacement or substitute; and other place of employment or source of livelihood in the case of an employee.