Sangwoo Philippines Inc. (SPI) vs Sangwoo Philippines, Inc.

Employee Union – OLALIA (SPEU)

FACTS: During the CBA negotiations between SPEU and SPI, the latter filed with DOLE a letter-notice
of temporary suspension of operations for one (1) month, beginning September 15, 2003, due to lack of
orders from its buyers. Negotiations on the CBA, however, continued and on September 10, 2003, the
parties signed a handwritten Memorandum of Agreement, which, among others, specified the employees’
wages and benefits for the next two (2) years, and that in the event of a temporary shutdown, all
machineries and raw materials would not be taken out of the SPI premises.

On September 15, 2003, indeed, SPI temporarily ceased its operations. Thereafter, it successively filed
two (2) letters with the DOLE for the extension of the temporary shutdown until March 15, 2004.
Meanwhile, October 28, 2003, SPEU filed a complaint for unfair labor practice, illegal closure, illegal
dismissal, damages and attorney’s fees before Regional Arbitration Branch IV of the NLRC.

Subsequently, SPI, posted, in conspicuous places within the company premises, notices of its permanent
closure and cessation of operations, effective March 16, 2004, due to serious economic losses and
financial reverses. Forthwith, SPI offered separation benefits of one-half month pay for every year of
service to each employee. 234 employees of SPI accepted the offer. Those who refused were
nevertheless given until March 25, 2004 to accept their checks and correspondingly, execute quitclaims.
However, the minority employees did not claim the said checks.

The LA ruled in favor of SPI. It found that SPI was indeed suffering from serious business losses. That it
complied with the requirement of furnishing the notices to the employees and the DOLE. That the closure
of business was due to serious business losses, hence, separation benefits are not mandated. The NLRC
sustained the LA ruling, but modified that SPEU members are entitled to separation pay of ½ month pay
for every year of service. The CA issued a TRO enjoining the enforcement of the NLRC resolution. With
regard to the minority employees, CA held they are not entitled to separation pay considering that the
company’s closure was due to serious business losses.

ISSUE: 1. Whether or not the minority employees are entitled to separation pay;
2. Whether or not SPI complied with the notice requirement of Article 297 of the Labor Code

RULING:

1. Closure of business is the reversal of fortune of the employer whereby there is a complete cessation
of business operations and/or actual locking-up of the doors of establishment, usually due to financial
losses.

The employer is generally required to give separation benefits to its employees, unless the closure is due
to serious business losses. Article 297 of the LC does not obligate an employer to pay separation benefits
when the closure is due to serious losses. To require an employer to be generous when it is no longer in
a position to do so, in the Court’s view, would be unduly oppressive, unjust, and unfair to the employer.
Ours is a system of laws and the law in protecting the rights of the working man, authorizes neither the
oppression nor the self-destruction of the employer.

In this case, the LA, NLRC, and the CA all consistently found that SPI indeed suffered from serious
business losses which resulted in its permanent shutdown and accordingly, held the company’s closure to
be valid. As such, SPI should not be directed to give financial assistance amounting to P15,000.00 to
each of the minority employees based on the Formal Offer of Settlement. If at all, such formal offer should
be deemed only as a calculated move on SPIs part to further minimize the expenses that it will be bound
to incur should litigation drag on, and not as an indication that it was still financially sustainable. However,
since SPEU chose not to accept, said offer did not ripen into an enforceable obligation on the part of SPI
from which financial assistance could have been realized by the minority employees.
2. Notice of Closure. Art. 297 of the LC provides that before any employee is terminated due to closure
of business, it must give one (1) month prior written notice to the employee and to the DOLE.
With regard to the notice requirement, the LA found as upheld by NLRC and CA, that the written notice of
closure or cessation of Galaxies business operations was posted on the company bulletin board one
month prior to its effectivity.

The mere posting on the company bulletin board does not, however, meet the requirement under Art. 297
of “serving a written notice on the workers.” In order to meet the foregoing purpose, service of the written
notice must be made individually upon each and every employee of the company.

Keeping with these principles, the Court finds that the LA, NLRC, and CA erred in ruling that SPI complied
with the notice of requirement when it merely posted various copies of its notice of closure in conspicuous
places within the business premises. As earlier explained, SPI was required to serve written notices of
termination to its employees, which it, however, failed to do. It is well to stress that while SPI had a valid
ground to terminate its employees (i.e. closure of business, its failure to comply with the proper procedure
for termination renders it liable to pay the employee nominal damages for such omission.)

In this case, considering that SPI closed down its operations due to serious business losses and that said
closure appears to have been done in good faith, the Court, similar to the case of Industrial Timer –
deems it just to reduce the amount of nominal damages to be awarded to each of the minority employees
from P50,000.00 to P10,000.00
Navotas Shipyard Corp. vs Montallana et al.
G.R. No. 190053. March 24, 2014.

FACTS: Montallana et al. filed a complaint for illegal (constructive) dismissal, with money claims against
the petitioners, Navotas Shipyard Corporation (Navotas Shipyard) and its President/General Manager,
Jesus Villaflor alleging that on October 20, 2003, the company’s employees (About 100) were called to a
meeting wher Villaflor told them:

“Magsasara na ako ng Negosyo, babayaran ko na lang kayo ng separation pay dahil wala na akong
pangsweldo sa inyo. Marami akong mga utang sa krudo, yelo, at iba pa.”

Since then, they were not allowed to report for work but Villaflor’s promise to give them separation pay
never materialized despite their persistent demands and follow-ups.

Navotas Shipyard, on the other hand, claimed that due to “seasonal lack of fish caught and uncollected
receivables,” the company suffered financial reverses. It was thus constrained to temporarily cease
operations. They projected that the company could resume operations before the end of six months or
April 22, 2004. It reported the temporary shutdown to the DOLE-NCR and fined an Establishment
Termination Report.

ISSUES:
1. Whether Art. 286 (bona-fide suspension of the operation of a business) and not Art. 283 (closure of
establishment and reduction of personnel) is the applicable provision in this case;
2. Whether or not the employees were illegally dismissed and accordingly entitled to backwages;
3. Whether or not there was a violation of due process in the termination which entitles payment of
nominal damages; and
4. Whether or not Navotas Shipyard is liable for the payment of separation pay.

RULING:
1. YES. As earlier stated, the petitioners undertook temporary shutdown. In fact, the company notified the
DOLE of the shutdown and filed an Establishment Termination Report containing the names of the
affected employees. The petitioners expected the company to recover before the end of the six-month
shutdown period, but unfortunately, no recovery took place.

The Court agrees with the company’s position that it resorted to a retrenchment under Art. 283 of the LC;
it was a temporary shutdown under Art. 286 where the employees are considered on floating status or
whose employment is temporarily suspended.

2. NO. Under the circumstances, the Court cannot say that the company’s employees were illegally
dismissed; rather, they lost their employment because the company ceased operations after failing to
recover from their financial reverses. The respondents’ verbal account of what happened during the
meeting, particularly the company’s imminent closure, to the Curt’s mind, confirmed the company’s dire
situation. The temporary shutdown, it appears, was a last-ditch effort on the part of Villaflor to make the
company’s operations viable but, as it turned out, the effort proved futile. Since then, there was no illegal
dismissal, the respondents are not entitled to backwages. The term “backwages” presupposes the
termination of employment.

(3) YES. The lack of basis for backwages notwithstanding, we note that the respondents claimed that they
were not given individual written notices of the company’s temporary shutdown or of its closure. The
records support the respondents’ position. Other than the Establishment Termination Report submitted by
the company to the DOLE-NCR when it temporarily shut down its operations and which included the
respondents’ names, there is no evidence (other than the petitioner’s informal talk with its employees,
which did not strictly comply with the legal requirement) that they were served individual written notices at
least thirty (30) days before the effectivity of the termination, as required under Section 1(iii), Rule I, Book
VI of the Omnibus Rules Implementing the Labor Code.
Pursuant to existing jurisprudence, if the dismissal is by virtue of a just or authorized cause, but without
due process, the dismissed workers are entitled to an indemnity in the form of nominal damages.

(4) YES.  Although Article 283 provides that in cases of closures or cessation of operations of
establishment or undertaking NOT due to serious business losses or financial reverses, the company is
obliged to give separation pay, and considering that the company’s closure was due to serious financial
reverses, it follows that is therefore NOT legally bound to give the separated employees separation pay.
Nonetheless, we note, however, that in his meeting with the employees, including the respondents, on
October 20, 2003, Villaflor told them that he would be giving them separation pay as a consequence of
the company’s closure. He should now honor his undertaking to the respondents and grant them
separation pay. Except for the petitioners’ claim that "they gave the separation pays of their
employees," they failed to present proof of actual payment. In this light, Villaflor’s grant of separation pay
to the respondents has still to be fulfilled.