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MARC II MARKETING v. ALFREDO M. JOSON

FACTS:

The case involves a dispute over the jurisdiction and dismissal of respondent Alfredo M. Joson as General Manager of petitioner corporation, Marc II Marketing, Inc. Petitioners argue that the dismissal is a purely intra-corporate controversy, while respondent claims an employer-employee relationship. The Court of Appeals, however, sustained the Labor Arbiter's finding that respondent was not a corporate officer of petitioner corporation. Petitioners assert that respondent's appointment as General Manager by petitioner corporation's Board of Directors makes him a corporate officer. Furthermore, they argue that respondent's claim for a share in the profit of petitioner corporation is based on his capacity as director and stockholder, and not an employer-employee relationship. Petitioners also contest the multi-million peso awards granted by the Labor Arbiter to respondent, as well as the Court of Appeals' decision to hold petitioner Lucila solidarily liable with petitioner corporation. Thus, the primary issue is whether the Labor Arbiter or the RTC has jurisdiction over respondent's dismissal as General Manager, which depends on whether respondent is a corporate officer or an employee.

The petitioner corporation is engaged in buying, marketing, selling, and distributing household appliances and products. Petitioner Lucila is the President and majority stockholder of the corporation. Respondent Alfredo was the General Manager, incorporator, director, and stockholder of the corporation. Before the official incorporation of the petitioner corporation, a Management Contract was executed between petitioner Lucila and respondent under the letterhead of Marc Marketing, Inc., which was later made non-operational following the incorporation of the petitioner corporation. The contract provided that respondent would be entitled to 30% of the net income as compensation for his work as General Manager. After the incorporation of the petitioner corporation, respondent continued to serve as General Manager. However, on June 30, 1997, the petitioner corporation decided to cease its operations due to poor sales collection and inefficient management. Respondent, feeling aggrieved, filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor Arbiter.

The petitioners filed an Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing of Position Paper, arguing that the Labor Arbiter did not have jurisdiction over the case. The Labor Arbiter denied both motions and declared final a previous order. The petitioners were given five days to file their position paper, but failed to do so. As a result, the case was submitted for resolution.

The Labor Arbiter rendered a decision in favor of the respondent, declaring his dismissal from employment as illegal. The Labor Arbiter ordered the petitioners to reinstate the respondent to his former or equivalent position, and to pay him unpaid wages, backwages, moral damages, and attorney's fees.

The petitioners appealed the Labor Arbiter's decision to the NLRC, which ruled in their favor. The NLRC stated that the case involved an intra-corporate controversy and dismissed the complaint for want of jurisdiction. The NLRC also found that the respondent's claim for a share in the net profit of the corporation could only come from his right of ownership as a stockholder, director, or corporate officer.

The respondent filed a motion for reconsideration with the NLRC, which was denied. He then filed a Petition for Certiorari with the Court of Appeals, arguing that the NLRC committed grave abuse of discretion.

The Court of Appeals declared that the Labor Arbiter had jurisdiction over the case and upheld the finding that the respondent was a mere employee who was illegally dismissed. However, it remanded the case to the NLRC for the determination of the appropriate monetary awards.

The petitioners sought reconsideration from the Court of Appeals but were unsuccessful. They then brought the case before the Supreme Court, asserting that the NLRC had jurisdiction over the purely intra-corporate matter.

The petitioner corporation's by-laws explicitly identified its corporate officers as the Chairman, President, one or more Vice-President, Treasurer, and Secretary. The position of General Manager was not among those enumerated. However, the corporation's by-laws also contained an enabling provision that empowered the Board of Directors to appoint other officers as it may determine necessary or proper. Subsequently, the Board of Directors approved a resolution to make the position of General Manager a corporate office and appointed the respondent to the said position. These actions were done without amending the by-laws.

ISSUES:

  1. Whether the position of General Manager in the corporation can be considered a corporate office.

  2. Whether the Board of Directors has the power to create other corporate offices without amending the by-laws.

  3. Whether or not the board resolution mentioned in the Secretary's Certificate was a fabrication.

  4. Whether or not the respondent can be considered a corporate officer under the by-laws of the corporation.

  5. Whether or not the dispute between the parties is an intra-corporate controversy.

  6. Whether the closure or cessation of operations of the establishment was due to serious business losses or financial reverses.

  7. Whether the petitioner corporation complied with the one-month prior written notice requirement for cessation of business operations under Article 283 of the Labor Code.

  8. Whether the respondent is entitled to separation pay.

  9. Whether or not the respondent's dismissal was due to an authorized cause.

  10. Whether or not the petitioner corporation observed procedural due process in effecting the dismissal.

  11. Whether or not the failure of petitioner corporation to comply with the one-month prior written notice rule constitutes a violation of the respondent's right to statutory due process.

  12. Whether or not the respondent is entitled to an award of nominal damages.

  13. Whether or not a Management Contract executed prior to the incorporation of the petitioner corporation has binding effect.

  14. Whether the Management Contract executed before the incorporation of the petitioner corporation is valid and binding on the corporation.

  15. Whether the provisions of the Management Contract fixing the respondent's compensation as General Manager to 30% of the corporation's net profit can be the basis for the computation of the respondent's separation pay.

  16. Whether petitioner Lucila, as the President of the corporation, is solidarily liable for the respondent's dismissal.

RULING:

  1. The position of General Manager cannot be considered a corporate office because it was not specifically mentioned or enumerated in the corporation's by-laws. Therefore, the person occupying such a position can only be regarded as an employee or subordinate official.

  2. The Board of Directors does not have the power to create other corporate offices without first amending the by-laws to include the newly created corporate office. They may create appointive positions, but these persons cannot be viewed as corporate officers under Section 25 of the Corporation Code.

  3. The board resolution mentioned in the Secretary's Certificate was found to be a fabrication by the Court of Appeals due to several inconsistencies and lack of evidence.

  4. The scope of the term "officer" in the phrase "and such other officers as may be provided for in the by-laws" depends on the provisions of the by-laws. In this case, the respondent was not listed as an officer in the by-laws and should be classified as an employee.

  5. The dispute between the parties is not an intra-corporate controversy since the respondent was not a corporate officer but a mere employee. The subject of the controversy, which is the respondent's dismissal as General Manager, did not present or relate to an intra-corporate dispute.

  6. The closure or cessation of operations of the establishment was not due to serious business losses or financial reverses. Mere poor sales collection and mismanagement of the affairs do not amount to serious business losses.

  7. The petitioner corporation failed to comply with the one-month prior written notice requirement for cessation of business operations under Article 283 of the Labor Code. The respondent and the Department of Labor and Employment were not given written notice at least one month before the cessation of business operations.

  8. The respondent is entitled to separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, as the closure or cessation of operations was not due to serious business losses.

  9. Yes, the respondent's dismissal was due to an authorized cause.

  10. No, the petitioner corporation failed to observe procedural due process in effecting the dismissal.

  11. Yes, the failure of petitioner corporation to comply with the one-month prior written notice rule constitutes a violation of the respondent's right to statutory due process.

  12. Yes, the respondent is entitled to an award of nominal damages.

  13. Yes, a Management Contract executed prior to the incorporation of the petitioner corporation has binding effect.

  14. The Management Contract executed before the incorporation of the petitioner corporation is not valid and binding on the corporation. The contract was entered into months before the incorporation and when petitioner Lucila was still the President of another corporation. There is no evidence to prove that the petitioner corporation adopted, ratified, or confirmed the contract. Therefore, it cannot be enforced against the petitioner corporation.

  15. The provisions of the Management Contract fixing the respondent's compensation cannot be the basis for the computation of his separation pay. Since the contract is not binding on the corporation, the percentage of the net profit specified in the contract cannot be used to determine the separation pay. The court remanded the case to the Labor Arbiter to determine the compensation that the respondent was actually receiving during his tenure as General Manager for the proper computation of his separation pay.

  16. Petitioner Lucila, as the President of the corporation, is solidarily liable for the respondent's dismissal. Although corporate officers are generally not personally liable for their official acts, the corporate veil can be pierced when used to perpetrate fraud, evade an existing obligation, or confuse legitimate issues. In this case, petitioner Lucila acted in bad faith and with malice in effecting the respondent's dismissal. Therefore, she is solidarily liable with the corporation for the respondent's claims.

PRINCIPLES:

  • The term "corporate officers" in Section 25 of the Corporation Code refers to those officers specifically mentioned in the corporate by-laws.

  • The Board of Directors does not have the power to create other corporate offices without first amending the by-laws.

  • Only the corporate officers enumerated in the by-laws are considered as officers of the corporation. Other positions may be considered as employees or subordinate officials.

  • A certification or resolution by the Board of Directors does not constitute an amendment of the by-laws. The positions of corporate officers must be specifically mentioned or enumerated in the by-laws.

  • Board resolutions must be properly authenticated and supported by evidence.

  • The classification of an individual as a corporate officer depends on the provisions of the corporation's by-laws.

  • Not all conflicts between stockholders and the corporation are classified as intra-corporate controversies. Other factors such as the status or relationship of the parties and the nature of the dispute must be considered.

  • In termination cases, the burden of proving just and valid cause for dismissing an employee rests upon the employer.

  • The closure or cessation of operations of an establishment may be due to serious business losses or financial reverses or otherwise. If it is otherwise, the employer can lawfully close shop as long as it was bona fide in character and not for the purpose of circumventing employee tenurial rights.

  • Requisites for a valid cessation of business operations are: (a) service of a written notice to the employees and the Department of Labor and Employment at least one month before the intended date; (b) the cessation of business must be bona fide in character; and (c) payment of termination pay to the employees.

  • In cases of closure or cessation of operations not due to serious business losses, separation pay is a statutory obligation on the part of the employer and a demandable right on the part of the employee.

  • The closure of business or cessation of operations must be due to serious business losses or financial reverses duly proved for the exception to the payment of separation pay to apply. (Labor Code)

  • Procedural due process in the termination of employment involves substantive compliance with the Labor Code provisions and prevailing jurisprudence, as well as compliance with the procedural requirements such as giving written notice to the employee and appropriate labor office at least thirty days before the termination. (Culili v. Eastern Telecommunications Philippines, Inc.)

  • The giving of notices in cases of termination of employment is intended to give employees the opportunity to look for another employment and for the Department of Labor and Employment (DOLE) to ascertain the verity of the alleged authorized cause of termination. (Mayon Hotel & Restaurant v. Adana)

  • Failure of the employer to comply with the written notice requirement in terminating the employment of an employee entitles the employee to the payment of nominal damages in addition to separation pay. (Culili v. Eastern Telecommunications Philippines, Inc.)

  • The sanctions to be imposed on employers who fail to comply with the notice requirements in terminating employees must be stiffer for dismissals based on an authorized cause as compared to those based on a just cause. (Agabon v. National Labor Relations Commission)

  • A Management Contract executed prior to the incorporation of a corporation may still have binding effect on the corporation. (Corporation Code)

  • A contract entered into before incorporation cannot bind the corporation.

  • The corporate veil can be pierced when used to perpetrate fraud, evade an existing obligation, or confuse legitimate issues.

  • Corporate officers are not personally liable for their official acts unless they exceed their authority.