G.R. No. 117473 . April 15, 1997.
REAHS CORPORATION, SEVERO CASTULO, ROMEO PASCUA, and DANIEL VALENZUELA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, BONIFACIO RED, VICTORIA PADILLA, MA. SUSAN R. CALWIT, SONIA DE LA CRUZ, SUSAN DE LA CRUZ, EDNA WAHINGON, NANCY B. CENITA and BENEDICTO A. TULABING, respondents.

FACTS

Private respondents were employees of Reahs Corporation, which operated a health and sauna parlor. The establishment closed on November 6, 1990. The employees filed complaints for illegal dismissal and monetary claims, including separation pay. Petitioners, the corporation and its officers (Castulo, Pascua, and Valenzuela), argued the closure was due to serious business losses and financial reverses, thus exempting them from paying separation pay under Article 283 of the Labor Code. They also contended that the corporate officers should not be held personally liable.
The Labor Arbiter dismissed the illegal dismissal complaint but awarded separation pay to all eight employees, finding the closure was not proven to be due to serious business losses. The Arbiter also awarded underpayment of wages, holiday pay, and 13th month pay to two employees (Red and Tulabing) who were paid daily rates, but not to the others who were on commission. The NLRC affirmed the decision. Petitioners filed this certiorari petition.

ISSUE

The primary issues were: (1) whether the corporate officers could be held jointly and severally liable with the corporation for the payment of separation pay, and (2) whether the closure due to alleged serious business losses exempted the employer from paying separation pay.

RULING

The Supreme Court affirmed the NLRC decision with modification, deleting the award of attorney’s fees. On the first issue, the Court held the corporate officers (Castulo, Pascua, and Valenzuela) jointly and severally liable with the corporation. The legal logic is that while a corporation has a separate juridical personality, its officers can be held personally accountable for corporate acts when they act in bad faith or with gross negligence. Here, the officers’ obstinate refusal to grant the legally mandated separation pay and other benefits to the employees, despite the corporation’s closure and the clear obligation, constituted bad faith. This made them solidarily liable under the principle that corporate fiction cannot be used to perpetrate injustice or evade legal obligations.
On the second issue, the Court upheld the award of separation pay. The employer bears the burden of proving that the closure was due to serious business losses or financial reverses to be exempt from paying separation pay under Article 283. Petitioners failed to present sufficient evidence, relying on mere allegations without substantiation like audited financial statements. Furthermore, the employer did not comply with the mandatory one-month written notice requirement to the employees and the DOLE. This failure reinforced the entitlement to separation pay. The award of attorney’s fees was deleted for lack of legal basis, as there was no express finding of unlawful withholding of wages under Article 111 of the Labor Code.