Held
No, the employees of Prestige Hotel are not correct in asserting that they should be absorbed by Infinite Corporation, under the ruling in Sundowner Development Corporation v. Drilon, G.R. No. 82341 (1989-12-06).
Explanation
The law guarantees workers security of tenure, meaning they cannot be terminated except for just or authorized causes with due process. However, this protection applies within the employer-employee relationship. When a business sells its assets or leases its premises to another company, the labor contracts do not automatically transfer to the new company because labor contracts are personal (in personam) and bind only the original parties. The new company, as a separate legal entity, has the constitutional right to select its own employees and is not legally required to absorb the employees of the previous employer unless the transaction is done in bad faith to evade labor obligations.
The Supreme Court in Sundowner Development Corporation v. Drilon clarified that the purchaser or lessee of assets or premises is not liable to absorb the employees of the seller or lessor unless there is evidence of bad faith or a contractual obligation to do so. The mere fact that the new company operates the same type of business in the same premises does not create an employer-employee relationship with the predecessor’s employees. The predecessor employer remains responsible for its employees’ claims.
Application to the facts
In this case, Prestige Hotel ceased operations and sold its assets to raise funds and settle its obligations. Major Corporation, the lessor, persuaded Infinite Corporation to lease the premises after Prestige Hotel stopped operations. Infinite Corporation immediately occupied the premises and began its business. There is no indication that Infinite Corporation expressly assumed the labor contracts of Prestige Hotel or agreed to absorb its employees. The transaction appears to be a lease of premises and sale of assets, not a transfer of the employer-employee relationship.
Following the Sundowner ruling, Infinite Corporation, as a separate entity, is not legally bound to absorb the employees of Prestige Hotel. Prestige Hotel remains responsible for its employees. Unless there is evidence that the transaction was done in bad faith to avoid labor obligations or that Infinite Corporation expressly agreed to absorb the employees, the employees of Prestige Hotel cannot demand absorption by Infinite Corporation.
"The workers' right to security of tenure is guaranteed under the Philippine Constitution and other laws and regulations. No employee shall be terminated from work except for just or authorized cause and upon observance of due process."
"In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement."
Laws retrieved
Everything retrieval surfaced, not only what the answer relied on. Read the ones it quotes.
- Section 1, Issuances of the Department of Labor and Employment and its Attached Agencies
- Section 5, Issuances of the Department of Labor and Employment and its Attached Agencies
- Section 4, Issuances of the Department of Labor and Employment and its Attached Agencies
- Article 294, Labor Relations
- Section 2, Financial Rehabilitation and Insolvency Act (FRIA) of 2010
"The rule is that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being _in personam,_ thus binding only between the parties .5 A labor contract merely creates an action in personally and does not create any real right which should be respected by third parties. ... This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution, and the same can only be restricted by law through the exerci…
In Sundowner Development Corporation v. Drilon, the Supreme Court held that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, as labor contracts are in personam and bind only the parties. The Court further stated that there is no law requiring a bona fide purchaser of assets of an ongoing concern to absorb the employees of the seller. However, if the transaction is attended by bad faith, the parties may be held liable to the employees. In the case, the Court found no bad faith and ruled that the absorption of the employees may not be imposed on the purchaser (Sundowner Development Corporation v. Drilon, G.R. No. 82341, December 6, 1989).
This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution, and the same can only be restricted by law through the exercise of the police power. As a general rule, there is no law requiring a bona fide purchaser of assets of an on-going concern to absorb in its employ the employees of the latter.
However, although the purchaser of the assets or enterprise is not legally bound to absorb in its employ the employees of the seller of such assets or enterprise, the parties are liable to the employees if the transaction between the parties is colored or clothed with bad faith. In the case at bar, contrary to the claim of the public respondent that the transaction between petitioner and Mabuhay was attended with bad faith, the court finds no cogent basis for such contention. Thus, the absorption of the employees of Mabuhay may not be imposed on petitioner. It is undisputed that when Mabuhay surrendered the leased premises to Syjuco and asked Syjuco to offer same to other lessees it was Syjuco who found petitioner and persuaded petitioner to lease said premises.
That, immediately after the execution of this Agreement, the FIRST PARTY shall give a list of its members to the THIRD PARTY that it desires to recommend for employment so that the latter can consider them for employment, with no commitment whatsoever on the part of the THIRD PARTY to hire them in the business that it will operate in the premises formerly occupied by the Hotel Mabuhay; From the foregoing, it is clear that petitioner has no liability whatsoever to the employees of Mabuhay and its responsibility if at all, is only to consider them for re-employment in the operation of the business in the same premises.
There can be no implied acceptance of the employees of Mabuhay by petitioner and acceptance of statutory wrong as it is expressly provided in the agreement that petitioner has no commitment or duty to absorb them. Moreover, the court does not subscribe to the theory of public respondent that petitioner should have informed NUWHRAIN of its lease of the premises and its purchase of the assets and personal properties of Mabuhay therein so that said employees could have taken steps to protect their interest. The court finds no such duty on the part of petitioner and its failure to notify said employees cannot be an indicium of bad faith. Much less is there any evidence that petitioner and respondent Mabuhay are joint tortfeasors as found by public respondent.
While it is true that petitioner is using the leased property for the same type of business as that of respondent Mabuhay, there can be no continuity of the business operations of the predecessor employer by the successor employer as respondent Mabuhay had not retained control of the business. Petitioner is a corporation entirely different from Mabuhay. It has no controlling interest whatever in respondent Mabuhay. Petitioner and Mabuhay have no privity and are strangers to each other. What is obvious is that the petitioner, by purchasing the assets of respondent Mabuhay in the hotel premises, enabled Mabuhay to pay its obligations to its employees. There being no employer-employee relationship between the petitioner and the Mabuhay employees, the petition must fail.
Petitioner cannot be compelled to absorb the employees of Mabuhay and to pay them backwages." (Sundowner Development Corporation v. Drilon, G.R. No. 82341)
Cases retrieved
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