The Supreme Court held that when a dispute arises from the removal of a corporate officer, the case falls under the jurisdiction of the Regional Trial Court (RTC), not the Labor Arbiter. This is because the removal of a corporate officer is considered an intra-corporate controversy, involving the corporation’s internal affairs. The determination hinges on whether the individual was elected by the board of directors as a corporate officer under the corporation’s by-laws, irrespective of their perceived ’employee’ status based on the four-fold test traditionally used for employment disputes. This ruling clarifies the jurisdictional boundaries between labor tribunals and civil courts in cases involving corporate officers.

From Executive to Plaintiff: Who Decides When a Corporate Officer is ‘Dismissed’?

Arsenio Z. Locsin, formerly the Executive Vice President/Treasurer (EVP/Treasurer) and later Chairman of Nissan Lease Phils. Inc. (NCLPI), filed a complaint for illegal dismissal against NCLPI and its president, Luis Banson, after he was not re-elected as Chairman nor reinstated as EVP/Treasurer. The core legal question revolves around whether Locsin’s removal constituted an illegal dismissal within the purview of labor laws or an intra-corporate dispute to be resolved by civil courts. The Labor Arbiter initially sided with Locsin, asserting jurisdiction based on the existence of an employer-employee relationship. However, NCLPI challenged this decision, arguing that Locsin’s position as EVP/Treasurer was that of a corporate officer, making the dispute intra-corporate and therefore outside the Labor Arbiter’s jurisdiction. The Court of Appeals (CA) reversed the Labor Arbiter’s decision, prompting Locsin to elevate the case to the Supreme Court.

The Supreme Court faced two critical issues: a procedural question regarding the CA’s jurisdiction to review the Labor Arbiter’s decision and a substantive question regarding Locsin’s status as a corporate officer or regular employee. The procedural issue arose because NCLPI directly appealed the Labor Arbiter’s denial of their Motion to Dismiss to the CA, which is generally not permissible under the rules. Ordinarily, the proper recourse would have been to proceed with the arbitration, present defenses, and then appeal to the National Labor Relations Commission (NLRC) after a final decision. However, the Supreme Court recognized that strict adherence to procedural rules could lead to injustice, especially if the Labor Arbiter lacked jurisdiction from the outset.

Addressing the procedural misstep, the Supreme Court acknowledged the general rule against appealing interlocutory orders, such as the denial of a motion to dismiss. Quoting Metro Drug v. Metro Drug Employees, the Court reiterated that “the denial of a motion to dismiss a complaint is an interlocutory order and hence, cannot be appealed, until a final judgment on the merits of the case is rendered.” The Court also referenced Section 1, Rule 65 of the Rules of Court, emphasizing that a special civil action for certiorari is available only when “there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law.” In the labor context, Article 223 of the Labor Code provides such a remedy through appeal to the NLRC, even on grounds of abuse of discretion by the Labor Arbiter. Despite acknowledging this procedural lapse, the Court decided to delve into the merits of the case.

The Court’s decision to overlook the procedural defect was grounded in the exceptional circumstances of the case. Applying the guidelines established in Sanchez v. Court of Appeals, the Court considered factors such as the existence of compelling circumstances, the merits of the case, the lack of fault or negligence by the party favored by the suspension of the rules, the absence of frivolous or dilatory motives, and the absence of unjust prejudice to the other party. Central to the decision was the determination that Locsin was indeed a corporate officer, not an employee, thereby stripping the Labor Arbiter of jurisdiction. This conclusion was based on several factors. Locsin was elected by the Nissan board as Chairman and President, positions explicitly outlined in the company’s By-laws. Moreover, even in his role as Executive Vice-President/Treasurer, a position also defined in the By-laws, Locsin’s functions and responsibilities aligned with those of a corporate officer.

Article IV, Section 4 of NCLPI’s By-Laws details the responsibilities of the Executive Vice-President/Treasurer, including managing funds, securities, receipts, and disbursements, and reporting on the financial condition of the corporation. This contrasts with the typical functions of an employee who is usually hired by a managing officer rather than elected by the board. Citing Okol v. Slimmers World International, the Court emphasized that “an ‘office’ is created by the charter of the corporation and the officer is elected by the directors or stockholders,” while an ’employee’ usually occupies no office and is employed by the managing officer. The Supreme Court underscored that Locsin’s election by the NCLPI Board, in accordance with the Amended By-Laws, solidified his status as a corporate officer. The Court quoted the CA’s factual determination, which highlighted Locsin’s failure to demonstrate any circumstances suggesting that the corporation engaged his services in a manner that would make him an employee, rather than an elected corporate officer.

Given Locsin’s status as a corporate officer, the Supreme Court affirmed that the RTC, not the Labor Arbiter or NLRC, had jurisdiction over the dispute regarding the legality of his termination. Citing previous cases, the Court reiterated that a corporate officer’s dismissal is always considered a corporate act or an intra-corporate controversy. Before amendments to the law, the Securities and Exchange Commission (SEC) had jurisdiction over such disputes, but Republic Act No. 8799 transferred this jurisdiction to the Regional Trial Courts. The Court acknowledged that dismissing the petition on procedural grounds would lead to remanding the case to the Labor Arbiter, despite clear evidence that the latter lacked jurisdiction. This would cause unnecessary delays and expenses, ultimately leading to an unjust outcome. Therefore, the Court prioritized the substantive merits of the case and the fundamental element of jurisdiction.

Jurisdiction is the bedrock upon which any judicial or quasi-judicial body exercises its power to hear and decide a case. The Supreme Court found that allowing the Labor Arbiter to continue presiding over a case where jurisdiction was manifestly absent would be a disservice to justice. The ruling does not delve into the merits of the termination itself, leaving Locsin the option to pursue an intra-corporate dispute in the appropriate RTC. By prioritizing the jurisdictional issue over procedural technicalities, the Supreme Court aimed to prevent unnecessary delays and ensure that the dispute is resolved in the correct forum. This decision underscores the principle that procedural rules should not be applied rigidly when they would lead to a miscarriage of justice, particularly when the lack of jurisdiction is evident.

FAQs

What was the key issue in this case?	The key issue was whether the complaint for illegal dismissal filed by Arsenio Z. Locsin, a former corporate officer, should be heard by the Labor Arbiter or the Regional Trial Court (RTC). The resolution hinged on whether Locsin was an employee or a corporate officer.
Why did the Supreme Court rule that the Labor Arbiter lacked jurisdiction?	The Supreme Court ruled that because Locsin was a corporate officer, the dispute was intra-corporate, and jurisdiction over intra-corporate disputes lies with the RTC, not the Labor Arbiter. This is based on the Corporation Code and jurisprudence defining corporate officers.
What defines a ‘corporate officer’ according to this case?	A corporate officer is defined as someone elected by the board of directors and whose position is created by the corporation’s charter or by-laws. In this case, Locsin’s positions (EVP/Treasurer and Chairman) were stipulated in NCLPI’s by-laws.
What is an ‘intra-corporate dispute’?	An intra-corporate dispute involves the internal affairs of a corporation, including controversies regarding the election, appointment, or removal of directors, trustees, or officers. These disputes are typically resolved within the civil court system.
What was the procedural issue in this case?	The procedural issue was that NCLPI directly filed a petition for certiorari with the CA after the Labor Arbiter denied their Motion to Dismiss. This is generally not allowed, as the proper recourse is to appeal to the NLRC after a final decision.
Why did the Supreme Court address the merits despite the procedural issue?	The Supreme Court addressed the merits because adhering strictly to procedural rules would have perpetuated the jurisdictional error and caused undue delay and expense. The Court prioritized ensuring the case was heard in the correct forum.
What does this ruling mean for other corporate officers who are terminated?	This ruling means that corporate officers who are terminated and believe they were illegally dismissed must file their complaints with the RTC, not the Labor Arbiter or NLRC. The case emphasizes the importance of determining the correct jurisdiction from the outset.
Can Locsin still pursue legal action after this decision?	Yes, the Supreme Court’s decision was without prejudice to Locsin’s right to seek relief through the appropriate remedy in the proper forum, which is the RTC. He can file an intra-corporate dispute regarding his termination.
What is the significance of the four-fold test in this case?	The four-fold test, typically used to determine employer-employee relationship, was deemed inapplicable in this case because Locsin was determined to be a corporate officer, not merely an employee. His election and role were governed by corporate law, not labor law.

In conclusion, the Supreme Court’s decision in Locsin v. Nissan Lease Phils. Inc. clarifies the jurisdictional boundaries in disputes involving corporate officers. While generally adhering to procedural rules, the Court recognized the importance of addressing jurisdictional issues upfront to prevent injustice and ensure efficient resolution. This case serves as a reminder that the nature of one’s role within a corporation—whether as an employee or a corporate officer—dictates the appropriate legal venue for resolving disputes related to their termination.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Arsenio Z. Locsin v. Nissan Lease Phils. Inc., G.R. No. 185567, October 20, 2010