There being no implied dismissal, demand for payment of separation pay is not proper

The Geothermal, Employees Union Vs. Unocal Philippine, Inc.
G.R. No. 190187. September 28, 2016


Unocal Philippines, formerly known as Philippine Geothermal, Inc., is a foreign corporation incorporated under the laws of the State of California, United States of America, licensed to do business in the Philippines for the “exploration and development of geothermal resources as alternative sources of energy.” It is a wholly owned subsidiary of Union Oil Company of California (Unocal Califomia), which, in turn, is a wholly owned subsidiary of Union Oil Corporation (Unocal Corporation). Unocal Philippines operates two (2) geothermal steam fields in Tiwi, Albay and Makiling, Banahaw, Laguna, owned by the National Power Corporation.

On April 4, 2005, Unocal Corporation executed an Agreement and Plan of Merger (Merger Agreement) with Chevron Texaco Corporation (Chevron) and Blue Merger Sub, Inc. (Blue Merger). Blue Merger is a wholly owned subsidiary of Chevron. Under the Merger Agreement, Unocal Corporation merged with Blue Merger, and Blue Merger became the surviving corporation. Chevron then became the parent corporation of the merged corporations: After the merger, Blue Merger, as the surviving corporation, changed its name to Unocal Corporation.

Unocal Philippines executed a Collective Bargaining Agreement with the Union. The Union wrote Unocal Philippines asking for the separation benefits provided for under the Collective Bargaining Agreement. According to the Union, the Merger Agreement of Unocal Corporation, Blue Merger, and Chevron resulted in the closure and cessation of operations of Unocal Philippines and the implied dismissal of its employees. Unocal Philippines refused the Union’s request and asserted that the employee-members were not terminated and that the merger did not result in its closure or the cessation of its operations. As Unocal Philippines and the Union were unable to agree, they decided to submit the matter to the Department of Labor and Employment’s Administrative Intervention for Dispute Avoidance Program. However, they were unable to arrive at “a mutually acceptable agreement.”

On November 24, 2006, the Union claimed that Unocal Philippines was guilty of unfair labor practice and filed a Notice of Strike. Later, the Union withdrew its Notice of Strike. On February 5, 2007, the parties agreed to submit their dispute for voluntary arbitration before the Department of Labor and Employment, with the Secretary of Labor and Employment as Voluntary Arbitrator.

Ruling of the Secretary of Labor:

Union’s members were impliedly terminated from employment as a result of the Merger Agreement. The Secretary of Labor found that the merger resulted in new contracts and a new employer for the Union’s members. The new contracts allegedly required the employees’ consent; otherwise, there was no employment contract to speak of. Thus, the Secretary of Labor awarded the Union separation pay under the Collective Bargaining Agreement.

Unocal Philippines filed before the Court of Appeals a Petition for Review questioning the Secretary of Labor’s Decision. Unocal Philippines claimed that the Union was not entitled to separation benefits given that Unocal Philippines was not a party to the merger,28 that it never closed nor ceased its business, and that it did not terminate its employees after the merger. It asserted that its operations continued in the same manner, and with the same manpower complement. Likewise, the employees kept their tenure intact and experienced no changes in their salaries and benefits

CA Ruling:

The Court of Appeals granted the appeal of Unocal Philippines and reversed the Decision of the Secretary of Labor. It held that Unocal Philippines has a separate and distinct juridical personality from its parent company, Unocal Corporation, which was the party that entered into the Merger Agreement. The Court of Appeals ruled that Unocal Philippines remained undissolved and its employees were unaffected by the merger. It found that this was evidenced by the Union’s assumption of its role as the duly recognized bargaining representative of rank-and-file employees a few months after the merger.

Moreover, the Court of Appeals found that although Unocal Corporation became a part of Chevron, Unocal Philippines still remained as a wholly owned subsidiary of Unocal California after the merger. It ruled that in any case, the Collective Bargaining Agreement only provided for the payment of separation pay if a reduction in workforce results from redundancy, retrenchment or installation of labor-saving devices, or closure and cessation of operations, all of which did not occur in this case. The Court of Appeals also pointed out that the Union’s members merely wanted to discontinue their employment with Unocal Philippines, but there was nothing in the Labor Code nor in the parties’ Collective Bargaining Agreement that would sanction the payment of separation pay to those who no longer wanted to work for Unocal Philippines as a result of the merger.

Hence, the instant petition.


  1. Whether or not the change of theory on appeal of respondent falls within the exception to the rule
  2. Whether or not the alleged merger resulted in the implied dismissal of the employees
  3. Whether employees are entitled to separation pay

SC Ruling:

Respondent alleges that it is a branch of Unocal Corporation. Claiming that it is a branch is inconsistent with its allegation (on appeal) that it is a subsidiary of another corporation. A branch and a subsidiary differ in its corporate existence: a branch is not a legally independent unit, while a subsidiary has a separate and distinct personality from its parent corporation.

Respondent not only failed to assert that it was not a party to the Merger Agreement, but it also referred to itself as the party who entered into the transaction and became the surviving corporation in the merger. Thus, the claim that respondent is not a party to the merger is a new allegation raised for the first time on appeal before the Court of Appeals. Raising a factual question for the first time on appeal is not allowed.

Respondent’s contention that it falls within the exception to the rule likewise does not lie. Respondent cites Quasha Ancheta Pena and Nolasco Law Office v. LCN Construction Corp. and claims that it falls within the exception since it did not present any additional evidence on the matter: In the interest of justice and within the sound discretion of the appellate court, a party may change his legal theory on appeal, only when the factual bases thereof would not require presentation of any further evidence by the adverse parties in order to enable it to properly meet the issue raised in the new theory.

However, this paragraph states that it is the adverse party that should no longer be required to present additional evidence to contest the new claim, and not the party presenting the new theory on appeal. Thus, it does not matter that respondent no longer presented additional evidence to support its new claim. The petitioner, as the adverse party, should not have to present further evidence on the matter before the new issue may be considered. However, the issue of whether respondent is a party to the Merger Agreement may be proven otherwise by petitioner, through the presentation of evidence that respondent is merely a branch and not a subsidiary of Unocal Corporation. Thus, respondent’s new allegation does not fall under the exception to the rule.

As to whether or not the merger resulted in the implied dismissal of petitioners, the SC in the negative.

Whether or not respondent is a party to the Merger Agreement, there is no implied dismissal of its employees as a consequence of the merger. A merger is a consolidation of two or more corporations, which results in one or more corporations being absorbed into one surviving corporation. The separate existence of the absorbed corporation ceases, and the surviving corporation “retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s).”

If respondent is a subsidiary of Unocal California, which, in turn, is a subsidiary of Unocal Corporation, then the merger of Unocal Corporation with Blue Merger and Chevron does not affect respondent or any of its employees. Respondent has a separate and distinct personality from its parent corporation. Nonetheless, if respondent is indeed a party to the merger, the merger still does not result in the dismissal of its employees.

Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank has ruled that the surviving corporation automatically assumes the) employment contracts of the absorbed corporation, such that the absorbed corporation’s employees become part of the manpower complement of the surviving corporation.

The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied termination of the employment of petitioner’s members. Assuming respondent is a party to the merger, its employment contracts are deemed to subsist and continue by “the combined operation of the Corporation Code and the Labor Code under the backdrop of the labor and social justice provisions of the Constitution.

Petitioner insists that this is contrary to its freedom to contract, considering its members did not enter into employment contracts with the surviving corporation. However, petitioner is not precluded from leaving the surviving corporation. Although the absorbed employees are retained as employees of the merged corporation, the employer retains the right to terminate their employment for a just or authorized cause. Likewise, the employees are not precluded from severing their employment through resignation or retirement. The freedom to contract and the prohibition against involuntary servitude is still, thus, preserved in this sense. This is the manner by which the consent of the employees is considered by the law.

Hence, assuming respondent is a party to the merger, the merger still does not operate to effect a termination of the employment of respondent’s employees. Should they be unhappy with the surviving corporation, the employees may retire or resign from employment. Given these considerations, we rule that petitioner is not entitled to the separation benefits it claims from respondent. Separation benefits are not granted to petitioner by law in case of voluntary resignation.

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Atty. Elvin’s new work, The Labor Code of the Philippines

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