SME Bank, Inc. v. De Guzman

Facts: Respondent employees were employees of SME Bank. Originally, the principal shareholders and corporate directors of the bank were Agustin and De Guzman. In June 2001, SME Bank experienced financial difficulties. To remedy the situation, the bank officials proposed its sale to Samson. 

Espiritu, then the general manager of SME Bank, held a meeting with all the employees of the head office and of the Talavera and Muñoz branches of SME Bank and persuaded them to tender their resignations, with the promise that they would be rehired upon reapplication. His directive was allegedly done at the behest of petitioner Olga Samson. Relying on this representation, Elicerio, Ricardo, Fidel, Simeon, Jr., and Liberato tendered their resignations. As it turned out, respondent employees, except for Simeon, Jr., were not rehired. Respondent-employees demanded the payment of their respective separation pays, but their requests were denied.

Respondent-employees filed a complaint before the NLRC-Regional Arbitration Branch No. III and sued spouses Abelardo, the Samson Group, and Agustin and De Guzman  for for unfair labor practice; illegal dismissal; illegal deductions; underpayment; and nonpayment of allowances, separation pay and 13th month pay. The LA ruled that the buyer of an enterprise is not bound to absorb its employees, unless there is an express stipulation to the contrary. However, he also found that respondent employees were illegally dismissed. NLRC denied the MR. CA affirmed the NLRC.

Issue: Whether the employees were illegally dismissed and, if so, which of the parties are liable for the claims of the employees and the extent of the reliefs that may be awarded to these employees.

Held: Yes, the employees were illegally dismissed. The law permits an employer to dismiss its employees in the event of closure of the business establishment. However, the employer is required to serve written notices on the worker and the Department of Labor at least one month before the intended date of closure. Moreover, the dismissed employees are entitled to separation pay, except if the closure was due to serious business losses or financial reverses. However, to be exempt from making such payment, the employer must justify the closure by presenting convincing evidence that it actually suffered serious financial reverses.

In this case, the records do not support the contention of SME Bank that it intended to close the business establishment. On the contrary, the intention of the parties to keep it in operation is confirmed by the provisions of the Letter Agreements requiring Agustin and De Guzman to guarantee the "peaceful transition of management of the bank" and to appoint "a manager of [the Samson Group’s] choice x x x to oversee bank operations."

In Simeon, Jr.’s case, he was made to resign, then rehired under conditions that were substantially less than what he was enjoying before the illegal termination occurred. Thus, for the second time, he involuntarily resigned from his employment. Clearly, this case is illustrative of constructive dismissal, an act prohibited under our labor laws. 

SME Bank, Eduardo M. Agustin, Jr. and Peregrin de Guzman, Jr. are liable for illegal dismissal. The settled rule is that an employer who terminates the employment of its employees without lawful cause or due process of law is liable for illegal dismissal. None of the parties dispute that SME Bank was the employer of respondent employees. The fact that there was a change in the composition of its shareholders did not affect the employer-employee relationship between the employees and the corporation, because an equity transfer affects neither the existence nor the liabilities of a corporation. Thus, SME Bank continued to be the employer of respondent employees notwithstanding the equity change in the corporation. This outcome is in line with the rule that a corporation has a personality separate and distinct from that of its individual shareholders or members, such that a change in the composition of its shareholders or members would not affect its corporate liabilities.