RELATIONSHIP TEST AND NATURE OF THE CONTROVERSY TEST AS NORM IN INTRA-CORPORATE DISPUTE

Castro vs. Court of Appeals, et al.
G.R. No. 204261. October 5, 2016

Facts:

Nuvoland is a corporation formed primarily “to own, use, improve, develop, subdivide, sell, exchange, lease and hold for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and other structures.” Respondent Ramon Bienvenida (Bienvenida) was the principal stockholder and member of the Board of Directors while Raul Martinez (Martinez) was its President. Silvericon, on the other hand, is a “corporation organized ‘to own, use, improve, develop, subdivide, sell, exchange, lease and hold for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and other structures.

Martinez recruited petitioner Edward de Castro (De Castro), as sales and marketing professional in the field of real estate, to handle its sales and marketing operations, including the hiring and supervision of the sales and marketing personnel. To formalize this undertaking, De Castro was made to sign a Memorandum of Agreement (MOA), denominated as Shareholders Agreement, wherein Martinez proposed to create a new corporation, through which the latter’s compensation, benefits and commissions, including those of other sales personnel, would be coursed. It was stipulated in the said MOA that the new corporation would have an authorized capital stock of P4,000,000.00, of which Pl,000,000.00 was subscribed and paid equally by the Martinez Group and the De Castro Group.

The supposedly new corporation contemplated was Silvericon. De Castro was appointed the President and majority stockholder of Silvericon while Bienvenida and Martinez were named as stockholders and incorporators thereof, each owning one (1) share of subscribed capital stock.

In the same MOA, Martinez was designated as Chairman of the new corporation to whom De Castro, as President and Chief Operating Officer, would directly report. De Castro was tasked to manage the day to day operations of the new corporation based on policies, procedures and strategies set by Martinez. For their respective roles, Martinez was to receive a monthly allowance of P125,000.00, while De Castro’s monthly salary was P400,000.00, with car plan and project income bonus, among other perks. Both Martinez and De Castro were stipulated to receive override commissions at 1% each, based on the net contract price of each condominium unit sold. During De Castro’s tenure as Chief Operating Officer of the newly created Silvericon, he recruited forty (40) sales and marketing personnel. One of them was petitioner Ma. Girlie F. Platon (Platon) who occupied the position of Executive Property Consultant. De Castro and his team of sales personnel were responsible for the sale of 100% of the projects owned and developed by Nuvoland.

Thereafter, the Sales and   Marketing Agreement (SMA), dated February 26, 2008, was purportedly executed by Nuvoland and Silvericon, stipulating that all payments made for the condominium projects of Nuvoland were to be given directly to it. Clients secured by the sales and marketing personnel would issue checks payable to Nuvoland while the cash payments, as the case may be, were deposited to Nuvoland’s account. Meanwhile, the corresponding sales commission of the sales personnel were issued to them by Nuvoland, with Martinez signing on behalf of the said company.

In a Letter, signed by Bienvenida, Nuvoland terminated the SMA on the ground that Silvericon personnel committed an unauthorized walkout and abandonment of the Nuvo City Showroom for two (2) days. In the same letter, Nuvoland demanded that Silvericon make a full accounting of all its uses of the marketing advances from Nuvoland. It, however, assured that all sales commissions earned by Silvericon personnel would be released as per existing policy. After the issuance of the said termination letter, De Castro and all the sales and marketing personnel of Silvericon were barred from entering the office premises. Nuvoland, eventually, was able to secure the settlement of all sales and marketing personnel’s commissions and wages with the exception of those of De Castro and Platon.

Aggrieved, De Castro and Platon filed a complaint for illegal dismissal before the LA, demanding the payment of their unpaid wages, commissions and other benefits with prayer for the payment of moral and exemplary damages and attorney’s fees against Silvericon, Nuvoland, Martinez, Bienvenida, and the Board of Directors of Nuvoland.

Nuvoland and its directors and officers denied a direct contractual relationship with De Castro and Platon, and contended that if there was any dispute at all, it was merely between the complainants and Silvericon. For its part, Silvericon admitted that it had employed De Castro as President and COO. It, however, asserted the application of Presidential Decree (P.D.) No. 902-A to the case, arguing that the claims come within the purview of corporate affairs and management, thus, falling within the jurisdiction of the regular courts.

LA Ruling:

LA handed down his decision in favor of De Castro and Platon. He concluded that Silvericon was a mere labor-only contractor and, therefore, a mere agent of Nuvoland. Nuvoland was adjudged as the direct employer of De Castro and Platon and, thus, liable to pay their money claims as a consequence of their illegal dismissal. According to the LA, the ground relied upon for the termination of the employment of De Castro and Platon -abandonment of the Nuvo City Showroom -was not at all proven. Mere suspicion that De Castro instigated the walkout did not discharge the burden of proof which heavily rested on the employer. Without an unequivocal showing that an employee deliberately and unjustifiably refused his employment sans any intention to return to work, abandonment as a cause for dismissal could not stand. Worse, procedural due process could not be said to have been observed through the expediency of a letter in contravention to Article 277, paragraph 2 of the Labor Code.

NLRC Ruling:

Not in conformity, Nuvoland, Bienvenida and Martinez interposed an appeal before the NLRC, arguing that the LA gravely abused his discretion in ruling that: 1) Silveri con was a labor-only contractor; 2) the case did not involve an intra-corporate dispute; and 3) Martinez and Bienvenida were solidarily liable for illegal dismissal.

The NLRC reversed the LA decision, finding that Silvericon was an independent contractor, thus, the direct employer of De Castro and Platon. In its view, in the SMA, Silvericon had full discretion on how to perform and conduct its marketing and sales tasks; and there was no showing that Nuvoland had exercised control over the method of sales and marketing strategies used by Silvericon. The NLRC further concluded that Silvericon had substantial capital. It pointed out that in several cases decided by the Court, even an amount less than One Million Pesos was sufficient to constitute substantial capital; and so to require Silvericon to prove that it had investments in the form of tools, equipment, machinery, and work premises would be going beyond what the law and jurisprudence required. Hence, it could not consider Silvericon as a dummy corporation of Nuvoland organized to effectively evade the latter’s obligation of providing employment benefits to its sales and marketing agents. This being the case, the NLRC ruled that no employer-employee relationship existed between Nuvoland, on one hand, and De Castro and Platon, on the other. There was no evidence showing that Nuvoland hired, paid wages, dismissed or controlled De Castro and Platon, or anyone of Silvericon’s employees. Resultantly, Martinez and Bienvenida could not be held liable for they merely acted as officers of Nuvoland.

De Castro and Platon assailed the decision of the NLRC via a petition for certiorari under Rule 65 with the CA.

CA Ruling:

The CA affirmed the findings of the NLRC, pointing out that what was terminated was the SMA. As such, the employment of the forty (40) personnel hired by Silvericon, as well as the petitioners’ employment, was not affected. Considering that there was no employer-employee relationship between the petitioners and Nuvoland, the CA deemed that the latter could not be held liable for the claim of illegal dismissal. Even assuming that De Castro was illegally dismissed, the CA opined that the NLRC was correct in refraining from taking cognizance of the complaint because De Castro’s employment with Silvericon put him within the ambit of Section 5.2 of Republic Act (R.A.) No. 8799, otherwise known as The Securities Regulation Code. As such, his claim should have been brought before the Regional Trial Court (RTC) instead. Upon the denial of their motion for reconsideration, the petitioners filed the instant petition.

Issues/s:

1. Whether or not there was employer-employee relationship
2. Whether or not Silvericon was labor-only contractor
3. Whether or not the case involves intra-corporate dispute
4. Whether or not there was valid dismissal

SC Ruling:

The SC found Nuvoland solidarily liable with Silvericon for the claims of complainants. Likewise, that there was ER-EE relationship and that the case does not involve intra-corporate controversy.

The Court also found the dismissal as illegal.

Elements of intra-corporate controversy

The SC finds that the LA properly took cognizance of the existence of an employer-employee relationship between the parties. The NLRC’s position that the case belonged to the RTC as an “intra-corporate dispute” could not be applied to Platon as she was merely a rank-and-file personnel raising illegal dismissal as her main cause of action.

With respect to De Castro, the Court recalls the pronouncement in Viray v. Court of Appeals, which provided for the policy in determining jurisdiction in similar cases. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the status or relationship of the parties; and (b) the nature of their controversy. Concurrence of these two renders a case as an intra-corporate dispute.

Nature-of-the-controversy test

Under the nature-of-the-controversy test, the dispute must not only be rooted in the existence of an intra-corporate relationship, but must also refer to the enforcement of the parties’ correlative rights and obligations under the Corporation Code, as well as the internal and intra-corporate regulatory rules of the corporation. The combined application of the relationship test and the nature-of-the-controversy test has, consequently, become the norm in determining whether a case is an intra-corporate controversy or purely civil in character. In the absence of any one of these factors, the case cannot be considered an intra-corporate dispute and the RTC acting as a special commercial court cannot acquire any jurisdiction. The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and ordinary corporate employees, who may only be terminated for just cause, on the other hand, do not depend on the nature of the services performed, but on the manner of creation of the office.

As it had been determined that Silvericon was a mere subterfuge for Nuvoland’s sales and marketing activities, the circumstances surrounding the nature of De Castro’s hiring and the very nature of his claims must be fully considered to determine jurisdiction. It must be remembered that De Castro was hired by Martinez and Bienvenida to be the President and COO of Silvericon. This appears in the SMA, which the Court has interpreted as a ruse to conceal Nuvoland’s labor-contracting activities. As previously discussed, the contrived cancellation of the SMA was, in effect, a termination of its personnel assigned to Silvericon.

Equally important for contemplation is the nature of the petitioners’ claims and arguments which not only demonstrates a firm avowal of labor-only contracting on the part of Nuvoland and Silvericon but also shows that the ultimate issue to be resolved is not rooted in a corporate issue governed by the Corporation Code and its implementing rules, but a labor problem, the resolution of which is covered by labor laws and DOLE issuances.

Piercing the veil of corporate fiction

As ruled in Prince Transport, Inc. v. Garcia, it is the act of hiding behind the separate and distinct personalities of juridical entities to perpetuate fraud, commit illegal acts and evade one’s obligations, that the equitable piercing doctrine was formulated to address and prevent.

Consequently, the piercing of the corporate veil disregards the seemingly separate and distinct personalities of Nuvoland and Silvericon with the aim of preventing the anomalous situation abhorred by prevailing labor laws. That Silvericon was independent from Nuvoland’s personality could not be given legal imprimatur as the same would pave the way for Nuvoland’s complete exoneration from liability after a circumvention of the law. Besides, a contrary proposition would leave the petitioners without any recourse notwithstanding the unquestioned fact that Nuvoland eventually assented to the settlement of all the sales and marketing personnel’s commissions and wages before the LA, except the petitioners. The respondents in their comment were strikingly silent on this point. In the interest of justice and equity, that veil of corporate fiction must be pierced, and Nuvoland and Silvericon be regarded as one and the same entity to prevent a denial of what the petitioners are entitled to. In a situation like this, an employer-employee relationship between the principal and the dismissed employees arises by operation of law. Silvericon being merely an agent, its employees were in fact those of Nuvoland. Stated differently, Nuvoland was the principal employer of the petitioners.

As additional basis of this outcome, the Court highlights the presence of the elements of an employer-employee relationship between the parties. In determining the presence or absence of an employer-employee relationship, the Court has consistently looked for the following incidents, to wit: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee on the means and methods by which the work is accomplished. The last element, the so-called control test, is the most important element. Jurisprudentially speaking, there is no hard and fast rule designed to establish the aforesaid elements. It depends on the peculiar facts of each case. The SC acknowledges the findings of the LA since the inception of this legal controversy.

The subject termination letter itself mentioned the release of all the commissions earned by Silvericon personnel after the impetuous decision of Nuvoland to physically bar the personnel from entry to their workplace. If these are not indicators of the power of engagement, payment of wages and power of dismissal, the Court is at a loss as to what to call this authority. Astonishingly, Nuvoland did not refute its conformity to the payment of commissions, as if it was oblivious to an admission that all commissions were taken directly from Nuvoland, and not from Silvericon. Verily, this reflects Nuvoland’s exercise of the power to compensate Silvericon personnel. The power to terminate employees had also been exercised by Nuvoland when it clearly dispensed with the cancellation clause in the SMA providing a 30-day period for grievance resolution. Instead, Nuvoland utilized the alleged abandonment of the showroom as a ground for unilateral termination of the simulated agreement.

As regards the power of control, the only argument raised by the respondents was the inclusion of a provision in the SMA which stated that Silvericon, as its agent, “shall be responsible for all advertisements, promotions, public relations, special events, marketing collaterals, road shows, open houses, etc. as part of its marketing efforts. the SMA showed that Silvericon exercised full and exclusive control over all levels of work, especially as to the means thereof. Regrettably, the existence of the subject provision would not cause an automatic proposition that Silvericon exercised control over the work of its personnel. A clear showing of Silvericon’s control over its day-to-day operations and ultimate work performance would have dispelled any doubt, but Nuvoland fell short on this score.

Worse, it again opted for silence when the petitioners alleged that Nuvoland provided the work premises of the sales and marketing personnel of Silvericon; that Nuvoland dictated the end result of the undertaking, that is, to sell at least eighty percent of the condominium project within a period of twenty-four months; that Nuvoland decided on the models, designs and prices of the units; that Nuvoland was the ultimate recipient of all amounts collected by the sales and marketing team; and lastly, Nuvoland determined the maximum amount of marketing expenses for the accomplishment of the goal.