G.R. No. 224099 , June 21, 2017
ROMMEL M. ZAMBRANO, ET AL., Petitioners, vs. PHILIPPINE CARPET MANUFACTURING CORPORATION/ PACIFIC CARPET MANUFACTURING CORPORATION, DAVID E. T. LIM, and EVELYN LIM FORBES, Respondents.

FACTS

Petitioners, employees and union members of Philippine Carpet Manufacturing Corporation (Phil Carpet), were notified on January 3, 2011, of the termination of their employment effective February 3, 2011, due to the total cessation of the company’s manufacturing operations. The company cited serious and continuous business losses as the ground for closure, supported by audited financial statements showing substantial net losses from 2006 to 2010. The petitioners received separation pay and executed individual release and quitclaim documents.
Petitioners contested their dismissal before the Labor Arbiter (LA), alleging the closure was not bona fide but a pretext to transfer operations to a wholly-owned subsidiary, Pacific Carpet Manufacturing Corporation (Pacific Carpet). They claimed job orders and machinery were moved to Pacific Carpet, and their mass dismissal constituted unfair labor practice targeting union officers and members. The LA dismissed the complaints, finding the closure was due to genuine economic necessity and that procedural requirements were met. The National Labor Relations Commission (NLRC) and the Court of Appeals (CA) affirmed the LA’s ruling.

ISSUE

Whether the termination of the petitioners’ employment was a valid dismissal due to authorized closure of business, or an illegal dismissal constituting unfair labor practice.

RULING

The Supreme Court denied the petition and affirmed the CA decision, upholding the validity of the dismissal. The legal logic is anchored on the principle that closure or cessation of business due to serious losses is an authorized cause for termination under Article 298 (formerly 283) of the Labor Code. The Court found Phil Carpet’s closure was motivated by genuine economic necessity, as conclusively established by its audited financial statements showing years of continuous and substantial net losses. The employer’s prerogative to close its business, provided it is done in good faith and not for the purpose of circumventing the rights of employees, is recognized.
The Court rejected the allegation of unfair labor practice, finding no substantial evidence that the closure was intended to defeat the petitioners’ right to self-organization. The mere fact that union members were dismissed does not automatically constitute unfair labor practice; there must be clear proof that the dismissal was in retaliation for union activities. Here, the financial distress was proven, and the subsequent sale of assets to Pacific Carpet was a separate business transaction that did not negate the reality of the initial closure. Furthermore, the company complied with procedural due process by serving written notices to the employees and the DOLE one month prior and by granting separation benefits, which the petitioners voluntarily accepted and for which they executed quitclaims.