G.R. No. 184819 NOVEMBER 29, 2017
VETERANS FEDERATION OF THE PHILIPPINES, Petitioner vs. EDUARDO L. MONTENEJO, MYLENE M. BONIFACIO, EVANGELINE E. VALVERDE, DEANA N. PAGAL, and VFP MANAGEMENT DEVELOPMENT CORPORATION, Respondents

FACTS

The Veterans Federation of the Philippines (VFP) entered into a management agreement with VFP Management and Development Corporation (VMDC), a separate private corporation, for the operation of the VFP Industrial Area. VMDC hired its own personnel, including the individual respondents. The agreement, initially for five years and extended, was terminated by VFP in November 1999, effective December 31, 1999. Consequently, VMDC dismissed all its employees, including the respondents, on January 31, 2000, citing the cessation of its business operations due to the terminated agreement and paid separation pay.
The dismissed employees filed a complaint for illegal dismissal against both VMDC and VFP. The Labor Arbiter ruled the dismissals were for an authorized cause (closure) but found the employees were contractual with a term co-terminous with the maximum possible ten-year term of the management agreement, ending January 4, 2001. Thus, they were entitled to salaries for the unexpired 11-month portion. The Arbiter held VFP and VMDC solidarily liable, deeming VFP an indirect employer. The NLRC reversed, declaring the dismissals illegal and awarding full backwages and separation pay. The Court of Appeals affirmed the NLRC.

ISSUE

Whether the dismissal of the employees was legal and whether VFP can be held solidarily liable for the monetary awards.

RULING

The Supreme Court ruled the dismissals were for an authorized cause under Article 298 (formerly 283) of the Labor Code, which includes closure or cessation of operation of an establishment not due to serious business losses or financial reverses. The termination of the management agreement, VMDC’s sole business purpose, constituted a legitimate closure. The law only requires payment of separation pay, which VMDC provided. The claim that the employees were fixed-term workers tied to a ten-year maximum contract period is erroneous. The management agreement was terminable and was, in fact, terminated earlier. The employees’ tenure was not fixed but was regular, lasting until the closure of VMDC’s operations. Therefore, they were not entitled to payment for an unexpired imaginary term.
Regarding liability, VFP cannot be held solidarily liable with VMDC. The employer-employee relationship existed solely between the respondents and VMDC, which hired, paid, and dismissed them. VFP was a distinct juridical entity and was merely VMDC’s principal under the management contract. The doctrine of solidary liability applies in labor cases only in specific instances, such as when the principal is engaged in labor-only contracting or when there is a finding of conspiracy to dismiss employees. No such finding exists here. Thus, only VMDC, the direct employer, is liable for the valid separation pay. The decisions of the NLRC and CA were reversed and set aside.