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ABS-CBN BROADCASTING CORPORATION v. RATO C. HILARIO

FACTS:

The petitioner, ABS-CBN Broadcasting Corporation (ABS-CBN), engaged the services of Creative Creatures, Inc. (CCI) to provide props and set design for its shows and programs. Respondent Honorato C. Hilario was hired by CCI as a designer in March 1995 and eventually became Set Controller, while respondent Dindo B. Banting was engaged as a Metal Craftsman in April 1999 and became Assistant Set Controller. In June 2003, CCI decided to close down due to the retirement of its managing director, Mr. Edmund Ty, and its failure to generate revenue. The termination letters were served to the respondents on September 4 and 5, 2003, respectively, and both respondents received separation pay and executed release and quitclaims. On September 24, 2003, the respondents filed a complaint for illegal dismissal, illegal deduction, and non-payment of meal allowances against CCI and ABS-CBN before the National Labor Relations Commission.

The case involves a complaint for illegal dismissal filed by respondents against ABS-CBN Corporation (petitioner) and Creative Channels, Inc. (CCI). Respondents claimed that the closure of CCI was not due to any authorized causes provided by law but was done in bad faith to circumvent the provisions of the Labor Code. Petitioner and CCI argued that they are separate and distinct corporations and that separation pay was given to the employees of CCI. The Labor Arbiter (LA) found the dismissal of respondents to be illegal and ordered their reinstatement and payment of full backwages and allowances. The National Labor Relations Commission (NLRC) affirmed the decision of the LA, ruling that petitioner and CCI should be treated as a single entity. The Court of Appeals (CA) affirmed the finding of illegal dismissal but modified the decision of the NLRC.

This case involves a petition for certiorari under Rule 65 seeking to reverse the decision of the Court of Appeals (CA) which affirmed the finding of illegal dismissal but modified the decision of the National Labor Relations Commission (NLRC) by ordering the reinstatement of the respondents.

The respondents were former employees of Creative Communications, Inc. (CCI), a company engaged in the business of providing manpower to ABS-CBN Broadcasting Corporation (ABS-CBN). However, due to CCI's closure, the respondents were terminated from their employment on October 5, 2003.

The respondents then filed a complaint for illegal dismissal against CCI and ABS-CBN. The Labor Arbiter ruled in favor of the respondents and declared their dismissal illegal. The NLRC affirmed the decision but modified the ruling on the amount of monetary award to be given to the respondents.

On appeal, the CA upheld the finding of illegal dismissal but modified the NLRC's decision by ordering the deduction of the amount received by the respondents through quitclaims from their respective monetary awards.

Petitioner filed a motion for reconsideration from the CA decision but was denied. Hence, the present petition seeking the reversal of the CA's decision.

ISSUES:

  1. Whether respondents' termination of employment due to cessation of business operations was valid.

  2. Whether petitioner is jointly and severally liable with CCI for the dismissal of respondents.

  3. Whether reinstatement of respondents is proper under the circumstances.

  4. Whether the closure of business operations by CCI was done in good faith or with the intention of circumventing the tenurial rights of employees.

  5. Whether petitioner, ABS-CBN, should be held jointly and severally liable with CCI for payment of monetary awards to the terminated employees.

  6. Whether the doctrine of piercing the corporate veil applies in this case, considering the relationship between petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) and Creative Creatures, Inc. (CCI) as well as their control and influence over each other.

  7. Whether petitioner ABS-CBN is jointly and severally liable with CCI for the illegal dismissal of respondents.

RULING:

  1. The Supreme Court denied the petition, affirming the findings of the labor tribunals and the appellate court that respondents were illegally dismissed. The Court also ruled that the termination of employment due to the cessation of business operations was not valid. In addition, the Court held that petitioner is jointly and severally liable with CCI for the dismissal of respondents. The Court further ruled that reinstatement of respondents is proper under the circumstances.

  2. The closure of business operations by CCI was not done in good faith and was intended to circumvent the tenurial rights of employees. CCI failed to sufficiently prove that its closure of business was bona fide and not intended to defeat or circumvent the employees' tenurial rights. The closure was deemed invalid as it was a mere simulation and a ploy to get rid of some employees. The evidence showed that there was actually a plan to continue the business operations under a new corporation. The termination of employment of the respondents was thus illegal.

  3. ABS-CBN should be held jointly and severally liable with CCI for payment of monetary awards to the terminated employees. The Court applied the doctrine of piercing the veil of corporate fiction and disregarded the separate personality of CCI. The evidence showed that ABS-CBN dropped CCI and instead hired Ty, one of CCI's officers, as a consultant, and subsequently hired Ty's new company for the services previously provided by CCI. These actions indicated that ABS-CBN and CCI should be treated as a single entity, therefore making ABS-CBN liable for the monetary awards to the terminated employees.

  4. The Court held that the doctrine of piercing the corporate veil applies in this case. Based on the circumstances surrounding the creation, incorporation, management, closure, and cessation of business operations of CCI, it was evident that CCI was merely an alter ego or business conduit of petitioner ABS-CBN. Therefore, their separate corporate personalities were disregarded, and they were treated as a single entity.

  5. The Court ruled that petitioner ABS-CBN is jointly and severally liable with CCI for the illegal dismissal of respondents. By considering Edmund Ty, a major stockholder and officer of petitioner, as an employee and Vice-President and Managing Director of CCI, and by exercising control and influence over the management and closure of CCI's operations, petitioner took part in the illegal dismissal of respondents. Thus, petitioner should be held liable together with CCI.

PRINCIPLES:

  • Security of tenure is guaranteed by the Constitution and our laws, and an employee can only be validly dismissed if the dismissal is based on just or authorized causes allowed under the Labor Code.

  • A dismissal that is not based on authorized causes is regarded as illegal and entitles the dismissed employee to backwages and, in most cases, reinstatement.

  • One of the authorized causes for dismissal recognized under the Labor Code is the bona fide cessation of business operations by the employer.

  • The separate corporate personalities of two corporations may be disregarded if one is merely an instrumentality or alter ego of the other, used to evade the latter's obligations.

  • A closure or cessation of business or operations as grounds for termination of an employee is considered invalid if it is not bona fide and is made to circumvent the employee's right to security of tenure.

  • The doctrine of piercing the veil of corporate fiction allows a corporation's separate personality to be disregarded under certain circumstances, treating the corporation and its stockholders or members, or a corporation and another related corporation, as a single entity. The doctrine applies in cases of defeat of public convenience, fraud, or the justification of wrongdoing.

  • The corporate veil may be pierced when a corporation is used to justify a wrong, protect fraud, or defend a crime, or when a corporation is merely a farce or alter ego of a person or another corporation.

  • When a corporation is found to be merely an alter ego or business conduit of a person or another corporation, the doctrine of piercing the corporate veil applies, and the separate corporate personalities may be disregarded.

  • An employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, as well as full backwages, inclusive of allowances and other benefits, from the time compensation was withheld until actual reinstatement.

  • When reinstatement is no longer viable, separation pay equivalent to one month for every year of service should be awarded as an alternative.

  • Interest should be imposed on the total monetary award, computed from the date of dismissal up to the finality of the decision, at a rate of six percent per annum, and thereafter, at a rate of twelve percent per annum from the finality of the decision until full satisfaction.