G.R. No. L-35412. January 31, 1978.
REMEGIO CORTES, RAMON DILLONES, RAFAEL IMPROGO, LIBERATO CABINBIN, ROSA MACAHILIG, SANTIAGO JAVISON, LYDIO LUCENO, ROMUALDO OLIGO, petitioners, vs. HON. VICENTE O. FRIAS, Presiding Judge of Branch II, Court of First Instance of Iloilo, and DULALIA, INC., respondents.

FACTS

Petitioners were employees of respondent Dulalia, Inc., a corporation operating several movie theaters in Iloilo City, including the Maya Theater. They were members of a union that entered into a Collective Bargaining Agreement (CBA) with the company on June 22, 1965. The CBA contained a provision for severance pay equivalent to fifteen days’ salary for every year of service. Unknown to the petitioners, the company’s lease for the Maya Theater building was set to expire on December 31, 1965. The company ceased operating the Maya Theater on that date, resulting in the dismissal of the petitioners assigned there. The company argued the closure of that specific theater constituted a just cause for termination, relieving it of the obligation to pay severance pay under the CBA and the Termination Pay Act ( Republic Act No. 1787 ).
The petitioners filed a complaint for recovery of severance pay and unrealized salaries for the unexpired term of the CBA. The City Court of Iloilo dismissed the complaint, ruling the termination was for a just cause. The Court of First Instance of Iloilo affirmed this dismissal, holding that the cessation of the Maya Theater’s operations constituted a closure of business that justified termination without separation pay.

ISSUE

Whether the closure of only one theater (Maya Theater) operated by a company running multiple establishments constitutes a “closing or cessation of operation of the establishment or enterprise” as a just cause for termination without severance pay under Republic Act No. 1787 .

RULING

The Supreme Court reversed the lower courts and granted the petition. The legal logic is anchored on a strict interpretation of the statutory phrase “closing or cessation of operation of the establishment or enterprise.” The Court ruled that for a termination to be justified under this provision, it must involve the complete closure of the employer’s entire business enterprise, not merely the shutdown of a single branch, department, or division. Since respondent Dulalia, Inc., continued to operate its other theaters (the Main and Midtown theaters), there was no total cessation of its business enterprise.
Consequently, the dismissal of the petitioners due to the isolated closure of the Maya Theater was not for a just cause as defined by law. The termination was therefore illegal for lack of a statutory justification. As a result, the petitioners became entitled to the severance pay stipulated in their CBA, which the company violated by refusing payment. However, the Court denied the claim for unrealized salaries for the CBA’s unexpired term, as the agreement did not fix a definite period of employment for the members. The respondent corporation was ordered to pay the petitioners their individual computed severance pay and attorney’s fees.