Marc II Marketing, Inc.

vs Joson

FACTS:

This case involves two corporations, Marc Marketing, Inc. and petitioner Marc II Marketing, Inc. The latter
took over the operations of the former which was made non-operational after the latter’s incorporation and
registration. Even before petitioner’s incorporation, respondent has already been engaged by petitioner
Lucila, the president of the two subject corporations, to work as the General Manager of petitioner
corporation. Pending incorporation, respondent was designated as the General Manager of Marc
Marketing, making respondent among the corporate officers by the express provision of its by-laws.

When petitioner corporation was finally incorporated and registered, and Marc Marketing became non-
operational, respondent continued to discharge his duties as General Manager but this time under the
petitioner corporation. As evidenced by an undated Secretary’s Certificate, the Board of Directors
conducted a meeting and appointed respondent as one of its corporate officers with the title of General
Manager to function as a managing director with other duties that the Board may provide and authorize.

Three years after the said meeting, petitioner corporation stopped its operation due to poor sales and
inefficient management. On the same day, respondent was terminated as General Manager since his
services are no longer needed for the winding up of the corporation’s affairs.

Respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor
Arbiter (LA) on the ground that he was dismissed because of petitioner Lucilia’s hatred towards his family,
since petitioner’s estranged husband was respondent’s brother who filed a case to nullify their marriage.

The LA required the parties to submit position papers since they failed to settle amicably. Respondent
complied but petitioner filed motion to dismiss alleging that LA has no jurisdiction since the case involved
an intra-corporate controversy which belongs to the SEC jurisdiction (now RTC).

Labor Arbiter’s ruling:

LA ultimately declared that respondent’s dismissal was illegal because being a regular employee of
petitioner corporation, he may only be dismissed for a valid cause and upon proper compliance with the
requirements of due process. LA held that petitioner failed to justify the dismissal, and ordered petitioners
to reinstate respondent and to pay him unpaid wages, full backwages and moral damages.

LA held that petitioners failed to provide evidence to prove that the case involved an intra-corporate
controversy, and respondent’s money claim did not arise from his being a director or stockholder but from
his position as being General Manager. LA held that respondent was not a corporate officer under the
petitioner’s by-laws, and the complaint arose from employer-employee relationship, thus under LA’s
jurisdiction.

NLRC ruling:

Petitioners appealed to the NLRC which in turn favored petitioners by giving credence to the undated
Secretary’s Certificate, which evidenced the Board of Director’s meeting designating respondent as
General Manager. NLRC held that the appointment and termination of the General Manager was made
subject to the approval of the Board of Directors, making him a corporate officer hence, the dismissal
involved an intra-corporate controversy. The remuneration of a stockholder and officer comes within the
ambit of corporate affairs and management and is an intra-corporate controversy under the Corporation
Code. NLRC denied respondent’s motion for reconsideration which prompted the filing of Petition for
Certiorari with the CA.

CA ruling:

CA reversed and set aside the resolution of NLRC. CA upheld LA’s decision on the ground that
respondent was not an officer but a mere employee of petitioner thus it is not intra-corporate controversy
Nevertheless, CA remanded the case to NLRC to determine the exact monetary award. CA denied
petitioners’ motion for reconsideration.

ISSUES:

a.) Whether or not LA has jurisdiction over respondent’s dismissal as General Manager of the
petitioner corporation.

b) Whether or not respondent’s dismissal is illegal

YES. SC found that respondent was not a corporate officer but a mere employee because his position as
General Manager was not specifically mentioned in the roster of corporate officers in petitioner
corporation’s by-laws. Since the case arose from an employer-employee relationship, it is subject to LA’s
jurisdiction.

SC held that petitioner corporation’s by-laws reveal that its corporate officers are composed only of: (1)
Chairman; (2) President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of
General Manager was not among those enumerated. The enabling clause in the petitioner’s by-laws
empowering the Board of Directors to create additional officers, i.e., General Manager, and the alleged
subsequent passage of a board resolution to that effect cannot make such position a corporate office.
Notably, the undated Secretary’s Certificate does not amount to an amendment of the by-laws which is
needed to make the position of General Manager a corporate office.

SC cited the case of Matling Industrial and Commercial Corporation v. Coros which enunciated that the
board of directors has no power to create other corporate offices without first amending the corporate by-
laws so as to include therein the newly created corporate officer. In the said case, SC held that “A
different interpretation can leave the way open for the Board of Directors to circumvent the constitutionally
guaranteed security of tenure of the employees by the expedient inclusion in the by-laws of an enabling
clause on the creation of just any corporate officer position.” Though the board may create newly
appointed positions other than the positions of corporate officers, the persons occupying the such
positions cannot be viewed as corporate officers under Section 25 of the Corporation Code.

Importantly, SC upheld CA’s decision that respondent was also a director and a stockholder of petitioner
corporation will not automatically make the case within the ambit of intra-corporate controversy and be
subject to RTC’s jurisdiction. SC reiterated that not all conflicts between the stockholders and the
corporation are classified as intra-corporate. Other factors such as the status or relationship of the
parties and the nature of the question that is the subject of the controversy must be considered.

In the case, since respondent being a mere employee of petitioner corporation, there was no intra-
corporate relationship. As to subject of controversy, respondent’s dismissal did not present or relate to an
intra-corporate dispute. There was no evidence that respondent’s removal as General Manager carried
with it his removal as director or stockholder. Respondent’s dismissal did not amount to intra-corporate
controversy, hence jurisdiction belongs with the LA and not with the RTC.

2. Whether or not respondent’s dismissal is illegal

NO. SC held that respondent’s dismissal from employment is legal but without proper observance of due
process because respondent was not given the required one-month prior written notice that petitioner will
already cease its operations.

Under Article 283 of the Labor Code, as amended, there are three requisites for a valid cessation of
business operations: (a) service of a written notice to the employees and to the Department of Labor and
Employment (DOLE) at least one month before the intended date thereof; (b) the cessation of business
must be bona fide in character; and (c) payment to the employees of termination pay amounting to one
month pay or at least one-half month pay for every year of service, whichever is higher.

In the case, SC held that there was no showing that the cessation of the business was done in the bad
faith or to circumvent the law. SC held that mere poor sales collection and mismanagement of petitioner’s
affairs do not amount to serious business losses. Nonetheless, petitioner corporation can still validly close
its business because such right is legally allowed, so long as it was not done for the purpose of
circumventing the provisions on termination of employment under the Labor Code.

Nevertheless, petitioner failed to comply with the one-month prior notice rule which violates due process.
The records showed petitioner did not give written notice to respondent and the DOLE. The records also
revealed that respondent was dismissed on the same date the petitioner corporation decided to stop and
cease its operation. In its discussion, the SC cited the case of Culili v. Eastern Telecommunications
Philippines where it opines that “there are two aspects which characterize the concept of due process
under the Labor Code: one is substantive—whether the termination of the employment was based on
the provision of the Labor Code or in accordance with the prevailing jurisprudence; the other is
procedural—the manner in which the dismissal was effected.”

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides that “the
requirement of due process shall be deemed complied with upon service of a written notice to the
employee and the appropriate Regional Office of the Department of Labor and Employment at least thirty
days before the effectivity of termination, specifying the ground or grounds for termination.”

Moreover, SC held that since the dismissal was not due to serious business losses, respondent is entitled
to payment of separation pay. In sum, SC affirmed CA decision with modification finding respondent’s
dismissal from employment legal but without proper observance of due process. SC remanded the case
to LA to determine respondent’s compensation and separation pay.