G.R. No. 184517 & G.R. No. 186641, October 8, 2013
SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR, JR., Petitioners, vs. PEREGRIN T. DE GUZMAN, EDUARDO M. AGUSTIN, JR., ELICERIO GASPAR, RICARDO GASPAR JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEON ESPIRITU, JR., and LIBERATO MANGOBA, Respondents.

FACTS

Small and Medium Enterprise Bank, Inc. (SME Bank) experienced financial difficulties in June 2001. Its principal shareholders and directors, Eduardo M. Agustin, Jr. and Peregrin de Guzman, Jr., negotiated a sale of the bank’s shares to Abelardo Samson. As a precondition for the sale, Samson, through his attorney-in-fact, demanded in Letter Agreements that Agustin and De Guzman guarantee a peaceful transition of management and “terminate/retire the employees we mutually agree upon, upon transfer of shares.” Agustin and De Guzman accepted these terms.
Acting on behalf of the new buyer, the bank’s general manager, Simeon Espiritu, persuaded the respondent employees (Elicerio Gaspar, Ricardo Gaspar, Jr., Eufemia Rosete, Fidel Espiritu, Simeon Espiritu, Jr., and Liberato Mangoba) to tender their resignations with a promise of rehire upon reapplication. Relying on this representation, the employees submitted resignation letters dated August 27, 2001 (Rosete also submitted a retirement letter in September 2001). They subsequently submitted application letters on September 11, 2001.
On September 11, 2001, Agustin and De Guzman sold 86.365% of SME Bank’s shares to spouses Abelardo and Olga Samson, who then took control, with Aurelio Villaflor, Jr. appointed as bank president. The respondent employees, except for Simeon Espiritu, Jr. (who was rehired but resigned a month later in October 2001), were not re-employed. Their demands for separation pay were denied.
The employees filed a complaint for illegal dismissal, unfair labor practice, and monetary claims against SME Bank, the Samson Group (spouses Samson and Villaflor), Agustin, and De Guzman. The Labor Arbiter found illegal dismissal but held only Agustin and De Guzman liable for separation pay, dismissing the complaint against the Samson Group. The NLRC modified the decision, ruling that the change in management from the sale of shares was not a valid ground for termination and held Agustin, De Guzman, and the Samson Group jointly and severally liable for separation pay, backwages, and damages. The Court of Appeals affirmed the NLRC’s decision.

ISSUE

1. Whether the respondent employees were illegally dismissed.
2. If so, which parties are liable for the employees’ claims and to what extent.

RULING

1. On Illegal Dismissal: The Supreme Court ruled that the respondent employees (except Simeon Espiritu, Jr.) were illegally dismissed. Their resignations were not voluntary but were involuntarily executed due to the promise of rehire, which constituted a constructive dismissal. A mere change in the equity composition or management of a corporation is neither a just nor an authorized cause for termination under the Labor Code. The employees’ security of tenure was violated. As for Simeon Espiritu, Jr., his second resignation in October 2001 was deemed voluntary, and thus he was not illegally dismissed from that point.
2. On Liability: The Court ruled that both the previous owners (Agustin and De Guzman) and the new owners (the Samson Group) are jointly and severally liable for the illegal dismissal. The Letter Agreements, which contained the precondition to terminate employees, made the sale conditional upon the mass termination. This established that the dismissal was an integral part of the sale transaction agreed upon by both the sellers and the buyer. Consequently, both groups are solidarily liable for the awarded monetary claims.
3. On Awards: The Court modified the awarded reliefs. The illegally dismissed employees are entitled to:
Full backwages from the date of dismissal (September 11, 2001) until finality of the decision.
Separation pay in lieu of reinstatement, computed at one month’s pay for every year of service.
Moral and exemplary damages were deleted for lack of basis.
Attorney’s fees equivalent to 10% of the total monetary award.
The decision of the Court of Appeals was AFFIRMED with MODIFICATION regarding the specific awards and the finding on Simeon Espiritu, Jr.’s second resignation.