G.R. No. 100686 August 15, 1995
PEPSI COLA DISTRIBUTORS OF THE PHILIPPINES, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, 5th Division, Cagayan de Oro City, HON. AMADO M. SOLAMO, Labor Arbiter, Sub-Regional Arbitration Branch No. 10, Butuan City, and TERTULIANO P. YUTE, respondents.

FACTS

Tertuliano P. Yute was a regular employee of Pepsi Cola Distributors of the Philippines, Inc. (PCD). His employment was terminated by PCD on December 15, 1988, on grounds of alleged abandonment. Yute filed a complaint for illegal dismissal. On May 22, 1989, the Labor Arbiter ruled in Yute’s favor, ordering his reinstatement with full backwages. PCD appealed this decision to the NLRC. During the pendency of the appeal, PCD reinstated Yute and placed him on the payroll effective May 22, 1989. However, on July 25, 1989, PCD stopped paying his salary, claiming it had sold its business interest in the Butuan plant to Pepsi Cola Products Philippines, Inc. (PCPPI) effective July 24, 1989.
PCPPI subsequently filed a manifestation in the case, asserting it was a separate juridical entity from PCD and was not a party to the case. It argued that the writs of execution for Yute’s back salaries could not be enforced against it. The NLRC, in a Resolution dated April 24, 1991, modified the Labor Arbiter’s decision. It ordered both PCD and PCPPI to reinstate Yute with full backwages from July 25, 1989, and to pay attorney’s fees. Alternatively, if reinstatement was no longer feasible, PCD was to pay separation pay. PCD filed this petition for certiorari.

ISSUE

Whether the National Labor Relations Commission committed grave abuse of discretion in holding PCPPI jointly and severally liable with PCD for the reinstatement and monetary claims of the illegally dismissed employee.

RULING

The Supreme Court affirmed the NLRC Resolution, finding no grave abuse of discretion. The legal logic rests on the application of labor law principles concerning business transfers and the protection of employee rights. The Court emphasized that the sale of the business or its assets does not automatically extinguish the employer’s liability for pending labor claims. The critical factor is the continuity of the business operation itself.
The Court found that PCPPI merely took over the manufacturing operations of PCD. There was no evidence presented that PCPPI, as the purchasing company, was free from the liabilities incurred by the former corporation. The business of selling Pepsi-Cola products continued without interruption; the same products were sold, and the business acts persisted. Under these circumstances, where the new entity continues the same business operations, it can be held liable for the unfulfilled obligations of the predecessor, such as the reinstatement and backwages of an illegally dismissed employee. This ensures that employees’ rights are not rendered nugatory by mere changes in corporate form or ownership. The award of separation pay as an alternative to reinstatement was also upheld, considering the strained relations and the consistent refusal to reinstate Yute.