REDUNDANCY CANNOT BE EFFECTIVE IF CARRIED OUT BY PERSONS BELONGING ONLY TO RELATED COMPANIES AND NOT BY COMPANY THAT HIRED THE EMPLOYEE

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise. (See related discussion: Guide to Valid Dismissal of Employees, Villanueva, page 221).

Thus, the Supreme Court held in the January 11, 2018 case as follows:

American Power Conversion Corporation, et al. vs. Jason Yu Lim
G.R. No. 214291, January 11, 2018

Facts:

Respondent Jason Yu Lim was hired to serve as the Country Manager of American Power Conversion Philippine Sales Office, which was not registered with the Securities and Exchange Commission (SEC) but whose function then was to act as a liaison office for American Power Conversion Corporation (APCC) -an American corporation –and provide sales, marketing, and service support to the local distributor and consumers of APCC in the Philippines.

APCC is engaged in designing, developing, manufacturing and marketing of power protection and management solutions for computer, communication, and electronic applications.

The only SEC-registered corporation then was American Power Conversion (Phils.), Inc. (APCPI) with manufacturing and production facilities in Cavite and Laguna. Since American Power Conversion Philippine Sales Office was unregistered but doing business in the country, Lim was included in the list of employees and payroll of APCPI. He was also instructed to create a petty cash fund using his own personal bank account to answer for the day-to-day operations of American Power Conversion Philippine Sales Office.

Thereafter, American Power Conversion (Phils.) B.V. (APCP BV) was established in the country and it acquired APCPI and continued the latter’s business here. Later, Lim was promoted as Regional Manager for APC North ASEAN, a division of APC ASEAN.

As Regional for APC North ASEAN, Lim handled sales and marketing operations for Thailand, the Philippines, Vietnam, Myanmar, Cambodia, Laos, and Guam, and reported directly to Larry Truong (Truong), Country General Manager for the entire APC ASEAN and officer of APCC. Truong was not connected in any way with APCP BV per its SEC registration, is licensed to engage only in the manufacture of computer-related products.

In an electronic mail (e-mail) message, Truong announced Lim’s appointment together with the appointment of David Shao (Shao) as Manager for South ASEAN which covered Singapore, Malaysia, Indonesia, and Brunei. Truong noted Lim’s steady and principled leadership since he joined APC Philippines in 1998 that “doubled the revenue despite the fact that the country economy has improved little since the Financial Crisis.”

Afterwards, Truong was replaced by APCC, et al. George Kong. During their stint with Kong, Lim and Shao supposedly discovered irregularities committed by Kong, which they reported to Leanne Cunnold (Cunnold), General Manager for APC-South and Kong’s immediate superior. Cunnold took up the matter with APCC, et al. Alicia Hendy (Hendy), Human Resource Director for APCP BV. Lim and Shao also took the matter directly to David Plumer (Plumer), Vice President for Asia Pacific of APC Japan, who advised them to discuss the matter directly with Kong.

Upon being apprised of the issues against him, Kong sent three e-mail messages to Lim and the other six members of the sales and marketing team indicating his displeasure and that he took the matter quite personally. In the last of his e-mail messages, he remarked -“‘and finally, thank you for the 7 knives in my back.”

Kong and Hendy met with Shao, where the latter was asked to resign. When he refused, he was right then and there terminated from employment with immediate effect. The Letter of Termination handed to him did not specify any reason why he was being fired from work, and was written on the official stationery of American Power Conversion Singapore Pte, Ltd. (APCS) and signed by its Human Resource Manager, Samantha Phang (Phang).

Thereafter, Kong arrived in the country and met with Lim on where he informed the latter of a supposed company restructuring which rendered his position as Regional Manager for North ASEAN redundant. Lim was furnished by the Human Resource Manager of APCP BV Maximo del Ponso, Jr. (Del Ponso) with a Termination Letter of even date.

The reason behind the redundancy as stated in the letter is that the changing directions of the business, and pursuant to need to realign and streamline the APAC Sales organization, the management decided to reconfigure APAC Sales function and as a result of such, it declared the position of Regional Manager -North ASEAN as redundant.

Lim’s counsel proceeded to the Department of Labor and Employment (DOLE) to verify if APCC, et al. gave the requisite notice of termination due to redundancy. In a Certification, the DOLE confirmed that there was no record on file of a notice of termination filed by any of APCC, et al.

Lim was paid severance pay, but in a written demand, he sought reinstatement, the payment of backwages and allowances/benefits, and damages for his claimed malicious and illegal termination. In a written reply by APCC’s counsel, APCC, et al. refused to accede.

Likewise, APCP BV through Hendy acknowledged to Lim that should he be questioned about the use by APCC of his private bank account, APCC, et al. will offer the fullest possible accounting of APCC’s past actions.

Lim filed a labor case against APCC, et al. for illegal dismissal and recovery of money claims. He claimed that he was illegally dismissed by APCC, et al. using a fabricated and contrived restructuring/ reorganization/redundancy program. The truth according to him was that his dismissal was motivated by bad faith and malice out of Kong’s desire to retaliate after he questioned Kong’s irregularities. APCC, et al. conspired and acted together to illegally remove him from his position through a fabricated redundancy.

Lim further alleged that in effecting the purported redundancy program, APCC, et al. did not comply with the requirements laid down by the Labor Code, particularly the giving of notice to the DOLE, which thus renders the dismissal null and void. Lim demanded payment for moral and exemplary damages and attorney’s fees. He also prayed for reinstatement with full backwages, allowances and other benefits.

APCC, et al. averred that Lim should have impleaded only APCP BV, as it is with the latter that Lim entered into an employment contract. The complaint against the other APCC, et al. should thus be dismissed.

Further, APCC, et al. alleged that when Plumer was appointed Vice President for APC Asia Pacific operations, a reorganization/restructuring of the APC Asia Pacific sales organization was undertaken, in that its operations were divided into 1) Enterprise Sales -which shall be responsible for selling directly to customers, and 2) Transactional Sales -which shall be tasked to handle distributions, network, and channels accounts. For this reason, there was a need to abolish the positions of Regional Manager -North ASEAN and Regional Manager -South ASEAN because they were no longer aligned with the new business model -and in their stead, the positions of Enterprise Sales Manager and Transactional Business Manager were created.

APCC, et al. posited that these two new positions required a different set of functions including job description, qualifications, and experience, which Lim did not possess. Two new employees with the requisite qualifications have been appointed to these two new positions. According to APCC, et al., in effecting the redundancy program, they complied with the requirements of law. APCP BV’s del Ponso sent to DOLE Region IV at Calamba, Laguna a written notice of the redundancy program to be implemented, but it did not contain the number and names of workers intended to be terminated from work, including that of Lim’s.

For APCC, et al., Lim’s dismissal was thus for cause. Lim is not entitled to his monetary claims on account of his valid dismissal due to redundancy. Reinstatement is no longer feasible since his former position has been abolished. Lim is not entitled to the rest of his claims and that the individual officers named in the complaint cannot be held personally liable as they acted in their official capacity and without bad malice. Thus, they prayed for the dismissal of Lim’s complaint.

LA Ruling:

The Labor Arbiter rendered a Decision in favor of Lim.

The LA held that APCC, et al. did not present any of the required evidence to establish the supposed restructuring and/or redundancy. There was also no evidence showing the approval of the said restructuring and/or redundancy by the directors and officers of Lim APC BV.

What was submitted on record were the affidavits and memoranda of the managers of Lim company on the alleged plans for restructuring which the Supreme Court held not sufficient to substantially prove the existence of a restructuring or redundancy. Moreover, in the previous reorganization of APC ASEAN, Country Managers and Regional Managers, complainant actively participated in the formation of the new structure for the APC ASEAN. The same tedious process of reorganization was however not undertaken by Lims APCC in the supposed decision to abolish the position of the ASEAN Regional Managers, thus rendering suspect the assertion of redundancy.

Also Lim APCC had not yet announced at that time of decision any reconfiguration, reorganization, or restructuring in APC ASEAN despite the effected termination if only to validate the alleged reorganization.

Further, the LA noted that after APCC, et al. terminated complainant and Mr. Shao as Regional Managers, the company hired two (2) new employees to perform basically the same functions of complainant and that of Mr. Shao, which is to market and promote APC products, which factor also belies the claim of redundancy. The hiring of two (2) new employees, albeit differently titled, merely effected substitution of complainant and Mr. Shao. The same substitution suggested that vacated posts of Regional Managers is necessary in the operations of Lim APCC which necessitated the performance thereof by the newly hired employees.

The obtaining circumstances did not help support Lim APCC’s claim of redundancy. With the abolition of the Regional Manager position, there should have been a merger of functions and not the hiring of replacements.

The LA reasoned that in the absence of a clear showing of redundancy, it is inclined to give credence to the assertion that APCC, et al. thru the initiative of Lim Kong was motivated to dismiss Lim from the company because of the latter’s report on the former’s violations of the APCC’s Code of Ethics. Evidently, the termination of Lim was not due to redundancy but a retaliatory action in the guise of redundancy for purposes of dismissing Lim from the service. The said action is clearly an exercise of management prerogative in bad faith. The LA further concluded that while it may be true that investigation was conducted on the reported breach of the Code of Ethics by Lim Kong, the lack of transparency on the results thereof, however, prevented giving credence to said assertion.

The LA ordered the payment of full backwages, reinstatement, damages, and attorney’s fees.

APCC, et al. appealed to the NLRC.

NLRC Ruling:

The LA reversed the Decision of the LA.

For the NLRC, the LA failed to take into consideration that the restructuring implemented by APC was organizational, meaning it affected not only APC (Philippines) B.V. but also APC ASEAN and APC Asia Pacific. Per NLRC, the Labor Arbiter failed to take into consideration the APC ASEAN organizational chart presented by APCC, et al., which showed that APC’s ASEAN organization was divided into Enterprise Sales and Transactional Sales (from the former grouping based on territorial boundaries), consistent with the organizational changes in the APC Asia Pacific sales organization.

APCC, et al. also presented the organizational chart of APC (Philippines) B.V., which showed that the ASEAN restructuring resulted in direct reporting lines from the Philippines to the ASEAN Enterprise Sales and Transactional Business Managers. This change in reporting lines rendered Lim’s position as Regional Manager -North ASEAN redundant.

Lim moved for reconsideration but it was denied by the NLRC. Thus, he filed a petition for certiorari before the CA.

CA Ruling:

The CA reversed and set aside the decision and resolution of the NLRC.

According to the CA, it is not enough for a company to merely declare that positions have become redundant. It must produce adequate proof of such redundancy to justify the dismissal of the affected employees.

The CA favored the factual determination of the LA that APCC, et al. did not present any of the required evidence to establish the supposed restructuring and/or redundancy. There was also no evidence showing the approval of the said restructuring and/or redundancy by the directors and officers of Lim APC B. V.

What was submitted on record were the affidavits and memoranda of the managers of Lim company on the alleged plans for restructuring which the Supreme Court held not sufficient to substantially prove the existence of a restructuring or redundancy. Moreover, in the previous reorganization of APC ASEAN, Country Managers and Regional Managers actively participated in the formation of the new structure for the APC ASEAN. The same tedious process of reorganization was however not undertaken by APCC, et al. in the supposed decision to abolish the position of the ASEAN Regional Managers, thus rendering suspect the assertion of redundancy.

Also significant to consider is the point raised by Lim that up to present, Lim APCC has not announced any reconfiguration, reorganization, or restructuring in APC ASEAN despite the effected termination if only to validate the alleged reorganization.

For the CA, it appeared from the records that the redundancy program was not in existence. Circumstances obtaining therein never point to the fact of a restructuring being carried out by the company. APCC, et al. dismally failed to convince that the organizational chart and self-serving affidavits presented are sufficient proof of the existence of redundancy.

APCC, et al. filed a motion for reconsideration but it was denied by the CA. Thus, they filed the petition before the Supreme Court.

Issue/s:

Whether or not redundancy is effective if carried out by persons belonging to related companies but not by the company that hired the employee

Whether or not the prerogative to declare position redundant can be held by related companies

Whether or not recovery for labor claims can be made against related companies and not just the company that hired the employee

SC Ruling:

The SC denied the petition.

According to the SC, when Lim was hired directly by APCC, an American entity that was not registered to conduct business here, to sell its products and services here, he was tossed over to another APC corporation, APCPI (now APCP BV), a Philippine-registered manufacturing corporation, where he was ostensibly included in the list of employees and the payroll.

In other words, APCC sanctioned the use of APCP BV as Lim’s cover, from where he conducted his sales operations for APCC. To further conceal and promote APCC’s covert sales operations here, Lim was required to create a petty cash fund using his own personal bank account to answer for the daily expenses and operations of the American Power Conversion Philippine Sales Office.

Thus, APCC conducted business in the Philippines as an unregistered and unregulated enterprise. Consequently, it did not pay taxes despite doing business here and earning income as a result. APCP BV was not engaged in sales, as it is licensed to engage only in the manufacture of computer-related products -yet, it holds Lim in its payroll.

Meanwhile, Lim took orders from and came under the supervision and control of APCS and Kong from Singapore. This arrangement and manner of conducting business by APCC, et al. is illegal. Being illegal, this should have been early on remedied by APCC, et al., including Plumer, Kong, and Hendy, who are presumed to know, by the very nature of their positions and business, how legitimate business is supposed to be conducted in this country, that is, by registering the business to allow regulation and taxation by the authorities. Yet they did not, and continued with this illegal arrangement to further their business here and avoid their legal obligations to the public and the government.

Everything seemed to go well for APCC, et al. with their illegitimate business arrangement. For his part, Lim-who was at the losing end of the bargain given that it was his name and reputation on the line as he was working for an unregistered, unregulated, and untaxed foreign enterprise and doing business with the public -prodded APCC to formalize and declare its existence in order to free himself from the precarious position that APCC has placed him in.

The SC found the situation unique in that Lim was hired directly by APCC of the U.S.A., but was being paid his remuneration by a separate entity-APCP BV of the Philippines, and is supervised and controlled by APCS from Singapore and APC Japan -all in furtherance of APCC’s objective of doing business here unfettered by government regulation.

The SC concluded that APCC, et al. are, for all practical purposes, Lim’s employers. He was selected and engaged by APCC. His salaries and benefits were paid by APCP BV and he is under the supervision and control of APCS and APC Japan. The SC observed that there is no such thing in legitimate employment arrangements.

For the SC, such bizarre labor relation was made possible and necessary only by APCC, et al.’s common objective: to enable APCC to skirt the law. For all legal purposes, APCC is Lim’s employer.

Therefore, the SC declared the subject redundancy scheme a sham, the same being an integral part of APCC, et al.’s illegitimate scheme to defraud the public -including Lim -and the State. It is null and void for being contrary to law and public policy as it is in furtherance of an illegal scheme perpetrated by APCC with the aid of its co-APCC, et al. Quae ab initio non valent, ex post facto convalescere non possunt. Things that are invalid from the beginning are not made valid by a subsequent act.

Related topic: Redundancy of IT Officer due to upgrading and enhancement of company’s computer system

Redundancy criteria

The SC found that while APCC was Lim’s employer, the redundancy program in issue that was used to justify Lim’s dismissal from work was nonetheless implemented by Plumer and Kong -who are employees of APC Japan and APCS, as well as by Hendy and del Ponso -employees of APCP BV. As admitted by APCC, et al., Plumer and Kong conceived and implemented the redundancy program, and Hendy and del Ponso prepared the documents which consummated Lim’s supposed dismissal. As APCP BV Human Resource Director and Manager, respectively, Hendy and del Ponso furnished the DOLE with documents relative to the redundancy scheme, including a notice of termination/redundancy.

Since APCC is Lim’s true employer, APC Japan, APCS, APCP BV, Plumer, Kong, Hendy, and del Ponso had no business coming into the picture. They are not connected with APCC whatsoever. They had no authority to devise a redundancy scheme and represent APCC in their dealings with the DOLE. Therefore, their supposed redundancy scheme, as against Lim, is ineffective. They had no power to terminate the services. The prerogative belonged to APCC.

However, this does not prevent Lim from recovering from all APCC, et al. Since they all benefited from his services -APCC was able to grow its business and conceal its sales operations and, by its misrepresentations and assurances that it would register its operations, it successfully convinced Lim to do its bidding.

APCP BV enjoyed the immense goodwill of APCC for aiding the latter in its elaborate cover-up and duping Lim, government, and the public into believing that it was Lim’s actual employer. APCS utilized Lim as its workhorse even as he drew his salaries from APCP BV -and knowingly aided and abetted each other in the commission of wrong, they should all be held responsible, under the principle of quasi-contract under Article 2142 of the Civil Code, for Lim’s money claims, including damages and attorney’s fees.

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For all purposes beneficial to Lim, APCC, et al. should be considered as his employers since they all benefited from his industry and used him in their elaborate scheme and to further their aim -evading the regulatory processes of this country. From a labor standpoint, they are all guilty of violating the Labor Code as a result of their concerted acts of fraud and misrepresentation upon Lim, using him and placing him in a precarious position without risk to themselves, and thus deliberately disregarding their fundamental obligation to afford protection to labor and insure the safety of their employees.

Finally, the SC held that for the gross violation of the fundamental policy of the Labor Code, APCC, et al. were liable to pay backwages, damages, and attorney’s fees.