Corporate vs personal liability in labor cases

The law has always looked favorably upon the plight of laborers who are often in the mercy of their employers. But even under such premise, can the court levy upon the property of officers of an erring corporation to satisfy judgment in favor of an employee? The Supreme Court (SC) had the opportunity to discuss this at length in the recent case of Jaime Montealegre and Chamon’té Inc. vs spouses Abraham and Remedios de Vera (GR 208920, 10 July 2019).

In said case, an employee won a complaint for illegal dismissal against his employer-corporation. The labor arbiter (LA) rendered a decision adverse to the corporation, finding it guilty of illegal dismissal and holding it liable to the employee for back wages, separation pay and unpaid salary. When the decision became final and executory, a writ of execution was issued, directing the sheriff to satisfy the decision out of the properties of the corporation and respondent officers (“respondents”).

Pursuant to this writ, a parcel of land registered in the name of the respondents was levied upon and sold at a public auction. It was only when petitioners filed a motion to consolidate the title in their names that respondents realized that only the corporation was impleaded in the labor case, hence, they countered that since the property sold at auction does not belong to the judgment debtor, the corporation, but to respondents, who were not impleaded as party respondents in the case for illegal dismissal, then the execution is void and of no effect.

The National Labor Relations Commission rejected the argument, claiming that although as a rule, the officers of a corporation are not personally liable for acts done in performance of their duties, an exceptional circumstance exists in this case, i.e., the corporation is no longer existing and is unable to satisfy the judgment in favor of the employee.

When the case was brought before it, the SC set aside the execution for failure to conform with the terms of the decision. It held that a writ of execution must strictly conform to every particular of the judgment to be executed. Here, the LA adjudged the corporation guilty of illegal dismissal and ordered it to pay separation pay and back wages. It did not mention respondents’ liability. Hence, the writ of execution that directed against the properties of both the corporation and respondents exceeded the terms of the final and executory judgment of the LA.

Further, the execution cannot be justified on the ground that the corporation had ceased to exist because the piercing of the veil of corporate fiction is unwarranted in this case. Although Article 212(e) of the Labor Code defines an “employer” as including any person acting in the interest of an employer, directly or indirectly, the said article by itself does not make a corporate officer personally liable for the debts of the corporation. In general, corporations are treated as separate and distinct legal entities from the natural persons composing them. In the absence of gross negligence, bad faith or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.

In Lozada vs Mendoza (GR 196134, 12 October 2016), the High Court ruled that to hold a director or officer personally liable for corporate obligation is the exception and it only occurs when the following requisites are present: the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and there must be proof that the director or officer acted in bad faith. There being no such allegation against the respondents, the court cannot allow execution to proceed against their own properties.

The wrong done to an employee cannot be rectified by another injustice and by the setting aside of well-entrenched procedural rules. Care must be given, therefore, that all the proper parties to a case be properly impleaded in order that a favorable judgment would not be reduced to paper victory.

“It held that a writ of execution must strictly conform to every particular of the judgment to be executed. Here, the LA adjudged the corporation guilty of illegal dismissal.

“Corporations are treated as separate and distinct legal entities from the natural persons composing them.