TERMINATION OF A COMPANY PRESIDENT IS INTRA-CORPORATE CONTOVERSY AND THE LABOR ARBITER HAS NO JURISDICTION

Termination disputes between an employer and an employee falls within the jurisdiction of the Labor Arbiter under Article 224 [formerly Article 217] of the Labor Code.

Nicanor F. Malcaba, et al. vs. Prohealth Pharma Philippines, et al.
G.R. No. 209085, June 6, 2018

Jurisdiction; Corporate officer; loss of trust and confidence; willful disobedience; Penalty is too harsh; Appeal bond; Substantial compliance on appeal bond

Facts:

ProHealth Pharma Philippines, Inc. (ProHealth) is a corporation engaged in the sale of pharmaceutical products and health food on a wholesale and retail basis. Generoso Del Castillo (Del Castillo) is the Chair of the Board of Directors and Chief Executive Officer while Dante Busto (Busto) is the Executive Vice President. Malcaba, Tomas Adona, Jr. (Adona), Nepomuceno, and Palit-Ang were employed as its President, Marketing Manager, Business Manager, and Finance Officer, respectively.

Malcaba had been employed with ProHealth since it started in 1997. He was one of its incorporators together with Del Castillo and Busto, and they were all members of the Board of Directors in 2004. He held 1,000,000 shares in the corporation. He was initially the Vice President for Sales then became President in 2005.

Malcaba alleged that Del Castillo did acts that made his job difficult. He asked to take a leave. When he attempted to return, Del Castillo insisted that he had already resigned and had his things removed from his office. He attested that he was paid a lower salary in December 2007 and his benefits were withheld. Malcaba tendered his resignation subsequently.

Nepomuceno, for his part, alleged that he was initially hired as a medical representative but was eventually promoted to District Business Manager for South Luzon. He later applied for vacation leave for several days which Busto approved. When he left for Malaysia, ProHealth sent him a Memorandum asking him to explain his absence. He replied through email that he tried to call ProHealth to inform them that his flight was on April 22, 2008 at 9:00 p.m. and not on April 23, 2008 but was unable to connect on the phone. He tried to explain again on May 2, 2008 and requested for a personal dialogue with Del Castillo. Nepomuceno was given a notice of termination on the ground of fraud and willful breach of trust.

Palit-Ang, on the other hand, was hired to join ProHealth’s audit team. She was later promoted to Finance Officer. Del Castillo instructed Palit-Ang to give P3,000.00 from the training funds to Johnmer Gamboa (Gamboa), a District Business Manager, to serve as cash advance. Busto issued a show cause memorandum for Palit-Ang’s failure to release the cash advance. Palit-Ang was also relieved of her duties and reassigned to the Office of the Personnel and Administration Manager.

In her explanation, Palit-Ang alleged that when Gamboa saw that she was busy receiving cash sales from another District Business Manager, he told her that he would just return the next day to collect his cash advance. When he told her that the cash advance was for car repairs, Palit-Ang told him to get the cash from his revolving fund, which she would reimburse after the repairs   were done. Del Castillo was dissatisfied with her explanation and transferred her to another office.

Palit-Ang was invited to a fact-finding investigation where Palit-Ang was again asked to explain her actions. Thereafter, she was handed a notice of termination effective for disobeying the order of ProHealth ‘s highest official.

Malcaba, Nepomuceno, Palit-Ang, and Adona (Malcaba, et al.) separately filed Complaints before the Labor Arbiter for illegal dismissal, nonpayment of salaries and 13th month pay, damages, and attorney’s fees against ProHealth Pharma Philippines, Inc., Generoso R. Del Castillo, Jr., and Dante M. Busto (ProHealth, et al.).

LA Ruling:

The Labor Arbiter (LA) found Malcaba, et al. to have been illegally dismissed.

The LA held that Malcaba was constructively dismissed. He found that ProHealth never controverted the allegation that Del Castillo made it difficult for Malcaba to effectively fulfill his duties. He likewise ruled that ProHealth’s insistence that Malcaba’s leave of absence in October 2007 was an act of resignation was false since Malcaba continued to perform his duties as President through December 2007.

The LA declared that Nepomuceno’s failure to state the actual date of his flight was an excusable mistake on his part, considering that this was his first infraction in his nine (9) years of service. He noted that no administrative proceedings were conducted before Nepomuceno’s dismissal, thereby violating his right to due process.

Palit-Ang’s dismissal was also found to have been illegal as delay in complying with a lawful order was not tantamount to disobedience. The Labor Arbiter further noted that delay in giving a cash advance for car maintenance would not have affected the company’s operations. He declared that Palit-Ang’s dismissal was too harsh of a penalty.

ProHealth appealed to the National Labor Relations Commission (NLRC).

NLRC Ruling:

The NLRC rendered its Decision affirming the LA’S Decision with modifications in that in that complainant Adona was declared to have voluntarily resigned and is entitled only to his 13^th month pay; the award of moral and, exemplary damages in favor of complainants Nepomuceno and Palit-Ang are deleted; and Castillo and Busto are held jointly and severally liable with ProHealth for the claims of complainant Malcaba.

ProHealth moved for reconsideration but it was denied by the NLRC. Thus, ProHealth, Del Castillo, and Busto filed a Petition for Certiorari before the Court of Appeals (CA).

CA Ruling:

The CA rendered its Decision reversing and setting aside the NLRC Decision.

The CA held that there was no employer-employee relationship between Malcaba and ProHealth since he was a corporate officer. Thus, he should have filed his complaint with the Regional Trial Court, not with the LA, since his dismissal from service was an intra-corporate dispute.

The Court of Appeals likewise concluded that ProHealth was justified in dismissing Nepomuceno and Palit-Ang since both were given opportunities to fully explain their sides.

Malcaba, Nepomuceno, and Palit-Ang moved for reconsideration but were denied. Hence, the Petition before the Supreme Court (SC).

Issue/s:

Whether or not the president of a corporation is a corporate officer to which the LA has no jurisdiction

SC Ruling:

The SC partially granted the petition. It declared Nepomuceno and Palit-Ang to have been illegally dismissed. The NLRC had no jurisdiction to adjudicate Malcaba’s claims. Malcaba was ordered to return the amount of P4, 937, 420.40 for having been erroneously awarded, without prejudice to his filing of claims before the proper forum.

The SC held that under Article 224 [formerly Article 217] of the Labor Code, the Labor Arbiter exercises original and exclusive jurisdiction over termination disputes between an employer and an employee while the National Labor Relations Commission exercises exclusive appellate jurisdiction over these cases. The presumption under this provision is that the parties have an employer-employee relationship. Otherwise, the case would be cognizable in different tribunals even if the action involves a termination dispute.

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Under Section 25 of the Corporation Code, the President of a corporation is considered a corporate officer. Citing Tabang vs. National Labor Relations Commission, the dismissal of a corporate officer is considered an intra-corporate dispute, not a labor dispute. Further, in Matting Industrial and Commercial Corporation vs. Caras, it was held that jurisdiction over intra-corporate disputes involving the illegal dismissal of corporate officers was with the Regional Trial Court, not with the Labor Arbiter.

In Tabang, the SC distinguished an employee from a corporate officer by explaining that the president, vice-president, secretary and treasurer are commonly regarded as the principal or executive officers of a corporation, and modern corporation statutes usually designate them as the officers of the corporation. However, other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary. It has been held that an “office” is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an “employee” usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.

The clear weight of jurisprudence clarifies that to be considered a corporate officer, first, the office must be created by the charter of the corporation, and second the officer must be elected by the board of directors or by the stockholders.

Learn more about other termination issues from the book Guide to Valid Dismissal of Employees Second Edition by Atty. Villanueva

Malcaba was an incorporator of the corporation and a member of the Board of Directors. ProHealth’s By-Laws creates the office of the President. That foundational document also states that the President is elected by the Board of Directors.

Finding that Malcaba is the President of respondent corporation and a corporate officer, any issue on his alleged dismissal is beyond the jurisdiction of the Labor Arbiter or the National Labor Relations Commission. Their adjudication on his money claims is void for lack of jurisdiction. As a matter of equity, Malcaba must, therefore, return all amounts received as judgment award pending final adjudication of his claims. This Court’s dismissal of Malcaba’s claims, however, is without prejudice to his filing of the appropriate case in the proper forum.

Other issues resolved in this case:

Whether or not there was substantial compliance on the appeal bond if, despite was failure to collect on said appeal bond, claimants were able to garnish the bank account

Whether or not the dismissal for willful breach of trust of an employee due to his failure to inform his superiors of the actual dates of his vacation leave is valid

Whether or not the failure to give the money as instructed as the employee told the collector to return the next day as she was busy constituted willful disobedience

Whether or not failure of the employer to inform the employee being charged of the right to counsel is a violation of the procedural due process