G.R. No. 202961 , February 4, 2015
EMER MILAN, RANDY MASANGKAY, WILFREDO JAVIER, RONALDO DAVID, BONIFACIO MATUNDAN, NORA MENDOZA, et al., Petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, SOLID MILLS, INC., and/or PHILIP ANG, Respondents.

FACTS

Petitioners were employees of respondent Solid Mills, Inc. (Solid Mills). Out of liberality and for their convenience, Solid Mills allowed petitioners and their families to occupy SMI Village, a company-owned property, on the condition that they would vacate when the company deemed fit. In September 2003, Solid Mills informed petitioners it would cease operations due to serious business losses effective October 10, 2003. This closure was acknowledged in a Memorandum of Agreement (MOA) dated September 1, 2003, between Solid Mills and the National Federation of Labor Unions (NAFLU), the petitioners’ collective bargaining agent. The MOA stated that while separation pay is not granted under the Labor Code for closures due to serious business losses, Solid Mills, by way of goodwill and generosity, agreed to grant financial assistance (computed at 12.625 days’ pay per year of service) less accountabilities, along with accrued sick leave, vacation leave, and 13th month pay. After operations ceased, Solid Mills sent individual notices to vacate SMI Village. Petitioners were required to sign a release and quitclaim agreement, which included vacating the village and agreeing to the demolition of their houses as a condition for receiving their terminal benefits. Petitioners refused to sign and filed complaints before the Labor Arbiter for non-payment of separation pay, accrued leaves, and 13th month pay, arguing these benefits were vested by law, contract, and company practice, and that their possession of company property was not an “accountability” subject to clearance. The Labor Arbiter ruled in favor of petitioners, ordering payment of benefits with interest, holding that the MOA did not condition payment on vacating the property and that the possession issue was a civil matter outside labor jurisdiction. Solid Mills appealed to the National Labor Relations Commission (NLRC), which reversed the Labor Arbiter, holding the benefits in abeyance pending petitioners’ return of the occupied lots. The NLRC ruled that the privilege to occupy was tied to employment and petitioners were obligated to turn over the property upon termination. The Court of Appeals dismissed petitioners’ subsequent petition for certiorari, affirming the NLRC’s decision.

ISSUE

Whether Solid Mills, Inc. is justified in withholding the terminal pay and benefits of petitioners pending their return of the company-owned property (SMI Village) they occupy.

RULING

Yes. The Supreme Court denied the petition and affirmed the decisions of the NLRC and the Court of Appeals. The Court held that an employer is allowed to withhold terminal pay and benefits pending the employee’s return of its properties. The right to withhold is based on the principle of solutio indebiti under quasi-contract, which prevents unjust enrichment. Petitioners’ occupancy of SMI Village was a privilege granted by Solid Mills due to the employer-employee relationship, constituting a precarium under Article 1947 of the Civil Code, which the bailor (Solid Mills) could demand at will. This privilege was coterminous with the employment. Upon the cessation of operations and termination of employment, petitioners had no more right to retain possession of the company property. Their continued possession constituted an “accountability” under the MOA, which provided for payment of benefits “less accountabilities.” Therefore, Solid Mills acted within its rights in withholding the terminal benefits until the company property was returned. The withholding was not oppressive but a legitimate measure to protect the company’s property rights, and the benefits were only suspended, not forfeited.