G.R. No. 194795; June 13, 2012
EVER ELECTRICAL MANUFACTURING, INC., (EEMI) and VICENTE GO, Petitioners, vs. SAMAHANG MANGGAGAWA NG EVER ELECTRICAL/ NAMAWU LOCAL 224 Represented by Felimon Panganiban, Respondents.

FACTS

Petitioner Ever Electrical Manufacturing, Inc. (EEMI) ceased operations on October 11, 2006, leading to the termination of its employees. Respondents, the union members, filed a complaint for illegal dismissal, alleging the closure was effected without the required notice under the Labor Code. EEMI defended the closure as due to serious business losses, citing massive financial setbacks from the Asian financial crisis, a failed investment in a bank, an unpaid loan secured by a mortgage on its factory, and competition from cheaper imports. This led to a dacion en pago transferring the property to United Coconut Planters Bank (UCPB). EEMI attempted to continue operations through an affiliate corporation, EGO, under a lease from UCPB, but UCPB eventually won an unlawful detainer case against EGO.
The Labor Arbiter (LA) ruled the dismissals were not illegal but ordered EEMI and its President, Vicente Go, to pay separation pay and 13th month pay in solidum. The National Labor Relations Commission (NLRC) reversed, dismissing the complaint entirely, finding the closure was due to serious business losses, thus negating the obligation for separation pay. The Court of Appeals (CA) reinstated the LA decision, holding the closure was triggered by the enforcement of a writ of execution in the detainer case, not directly by business losses, and affirmed the solidary liability of Go.

ISSUE

The core issues were: (1) whether the closure was due to serious business losses exempting EEMI from paying separation pay; and (2) whether corporate officer Vicente Go could be held solidarily liable with the corporation.

RULING

The Supreme Court granted the petition in part. On the first issue, it ruled that the closure was indeed due to serious business losses or financial reverses. The Court emphasized that the chain of events—the financial crises, massive losses, loan default, and property loss via dacion en pago—constituted a legitimate cause for closure under Article 283 of the Labor Code. The subsequent unlawful detainer and writ of execution were merely the proximate operational effect of these antecedent financial failures. Since the closure was due to serious business losses, the law does not obligate the employer to grant separation pay. The CA erred in isolating the writ of execution as the sole cause.
On the second issue, the Court affirmed the solidary liability of Vicente Go. Citing established jurisprudence, the Court held that corporate officers can be held personally liable for the corporation’s debts to employees when the corporation is no longer operational or is unable to satisfy the judgment. Given EEMI’s defunct status following the closure, holding Go solidarily liable was proper to ensure the employees could actually recover the awarded 13th month pay, which remained due notwithstanding the exemption from separation pay. Thus, the NLRC decision was reinstated but modified to uphold Go’s solidary liability for the 13th month pay award.