Dear Atty. Gab,

Musta Atty! I hope you can shed some light on my situation. I used to work for a small manufacturing company, R&M Industrial Parts, here in Valenzuela City for about 8 years. Last year, along with two colleagues, I was suddenly dismissed. The reason given was redundancy, but we felt it was unfair because the company still seemed busy, and they hired new, younger workers shortly after letting us go.

We filed a case with the Labor Arbiter for illegal dismissal and thankfully, after several months, the decision came out in our favor. The LA ordered R&M Industrial Parts to reinstate us and pay back wages, 13th-month pay, and some damages totaling around P450,000 for the three of us. The company appealed to the NLRC, but the decision was mostly affirmed, just removing the damages.

Here’s my problem, Atty. Gab. Just weeks after the NLRC decision became final, R&M Industrial Parts suddenly closed down. They claimed bankruptcy, but we suspect the owner, Mr. Roberto Valdez, just shut it down to avoid paying us. Now, when we try to execute the judgment, the sheriff says the company has no more assets. Mr. Valdez, however, seems to be doing fine and even started a similar business under a different name.

The original decision only named R&M Industrial Parts as the respondent, not Mr. Valdez personally, although he was the President and General Manager who signed our dismissal letters. Is there any way to go after Mr. Valdez personally for the money owed to us? It feels so unjust that he can just close the company and walk away after we won our case fair and square. Can his personal assets, like his house or shares in other companies, be levied? I’m really confused about what happens when the company closes down like this. Hope you can guide us. Salamat po.

Sincerely,
Mario Rivera

Dear Mario,

Thank you for reaching out. I understand your frustration and concern regarding the closure of R&M Industrial Parts and the difficulty in executing the favorable labor judgment you and your colleagues obtained. It certainly feels unfair when it appears an employer might be evading responsibility.

Your situation touches upon fundamental principles of Philippine corporate and labor law, specifically regarding the separate legal personality of a corporation and the potential liability of its officers. Generally, a corporation is treated as an entity separate from its owners or officers. This means corporate debts are usually not the personal debts of its officers or shareholders. However, this separation is not absolute, and the law allows for exceptions, particularly in cases involving bad faith or actions intended to circumvent the law or defeat valid claims like yours.

Understanding the ‘Corporate Veil’ and Officer Liability

The basic rule under Philippine law is that a corporation has a separate juridical personality. This means it is treated as a legal person distinct from the individuals who compose it – its directors, officers, stockholders, or members. Think of it like a shield, often called the ‘corporate veil,’ that separates the corporation’s liabilities from the personal assets of those running it or owning it.

Consequently, obligations incurred by the corporation, acting through its agents like Mr. Valdez, are generally the corporation’s direct responsibility, not the personal liability of the officers or directors. As a general principle:

“A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their personal liability but the direct responsibility of the corporation they represent.”

This principle protects individuals from being personally drained by business debts, encouraging entrepreneurship. However, this protective veil is not intended to be used as a tool for fraud or to escape legal obligations unjustly. The law recognizes situations where this veil can be ‘pierced,’ making the officers or directors personally liable alongside the corporation.

In labor cases, particularly those involving illegal dismissal or unpaid wages, personal liability for corporate officers like Mr. Valdez can arise, but specific conditions must be met. It’s not automatic simply because he was the owner or president. The key factor is the presence of malice or bad faith in their actions related to the obligation.

The Supreme Court has clarified the requirements needed to hold a director or officer personally liable for corporate obligations:

“To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must be proof that the officer acted in bad faith.”

In your case, simply closing the company after a final judgment, while suspicious, might not automatically equate to bad faith sufficient to pierce the corporate veil. You would need to demonstrate, with substantial evidence, that Mr. Valdez acted deliberately and maliciously, using the corporate structure primarily to evade the judgment debt. For instance, proof that the closure was a sham, that assets were deliberately siphoned off, or that the new business is essentially a continuation of the old one using the same resources but under a different name, could potentially support a finding of bad faith.

Another crucial point is the finality of judgment. You mentioned that the original labor decision named only R&M Industrial Parts as the respondent liable for the award. Generally, a judgment that has become final and executory cannot be altered or modified anymore.

“[A] final and executory judgment can no longer be altered. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law… Since the alias writ of execution did not conform, is different from and thus went beyond or varied the tenor of the judgment which gave it life, it is a nullity.”

This means that if Mr. Valdez was not explicitly held personally liable (jointly and severally with the corporation) in the final decision of the NLRC, the implementing writ of execution cannot simply add his name and target his personal assets. Attempting to enforce the judgment against him personally at the execution stage, without a prior finding of his liability based on bad faith within the decision itself, would generally violate his right to due process. However, avenues might exist to pursue him if bad faith in closing the company to evade judgment can be proven in a separate action or a proceeding related to the execution, although this can be complex.

Regarding the computation of the award, particularly backwages or separation pay (if reinstatement is no longer feasible due to closure), the calculation might also be affected by the company’s cessation.

“Anent the computation of their liability for the payment of separation pay in lieu of reinstatement… the Court agrees with the ruling… that it must be computed only up to the time [the company] ceased operations… It cannot be held liable to pay separation pay beyond such closure of business where such closure was due to legitimate business reasons…”

If R&M’s closure is deemed a legitimate business cessation (even if the timing is suspect), the computation of separation pay, if awarded in lieu of reinstatement, might be limited up to the date the company officially ceased operations.

Practical Advice for Your Situation

• Review the Final Decision Thoroughly: Carefully examine the dispositive portion (the final ruling) of the NLRC decision. Confirm if it exclusively names R&M Industrial Parts or if there’s any mention, however slight, of joint and several liability potentially including officers.
• Gather Evidence of Bad Faith: Suspicion isn’t enough. Collect concrete evidence suggesting Mr. Valdez closed R&M primarily to evade the judgment. This could include proof of asset transfer before closure, the nature of his new business (is it identical?), timing, statements made, etc.
• Consult a Labor Lawyer: Discuss the specifics with a lawyer experienced in labor execution proceedings. They can assess the strength of your evidence of bad faith and advise on the procedural options, which might involve filing a motion to pierce the corporate veil during execution (difficult but possible) or even a separate civil action.
• Verify Corporate Assets: Double-check with the sheriff or through your lawyer if R&M Industrial Parts truly has zero assets left. Sometimes assets might be hidden or undervalued.
• Understand Liability Limits: Be prepared for the possibility that recovery might be limited to corporate assets if bad faith by Mr. Valdez cannot be sufficiently proven according to legal standards.
• Assess Closure Legitimacy: Consider if the closure, despite the timing, had any basis in genuine financial difficulty. This affects both the potential for piercing the veil and the computation period for separation pay.
• Explore Execution Against the New Company: If you can strongly prove that the new business is merely a continuation or alter ego of R&M, your lawyer might explore strategies to execute the judgment against it, though this is also a complex legal battle.

Navigating the execution of a labor judgment, especially when a company closes, can be challenging. The principle of separate corporate identity is strong, but not insurmountable when faced with clear evidence of bad faith used to deny workers their rightful claims. Document everything and seek experienced legal counsel to explore the best path forward based on your specific evidence.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.