The Supreme Court held that an employee who was demoted and subjected to anti-union harassment was constructively dismissed, affirming the Court of Appeals’ decision. The Court found that the employer’s actions made continued employment untenable, justifying separation pay, moral damages, and attorney’s fees. This ruling underscores the importance of protecting employees from actions that effectively force them out of their jobs due to demotions, discrimination, or anti-union activities.

Banana Republic Blues: When Cooperative Loyalty Leads to Constructive Dismissal

This case revolves around Bernabe Baya’s employment with AMS Farming Corporation (AMSFC) and Davao Fruits Corporation (DFC). Baya, a supervisor and active member of AMS Kapalong Agrarian Reform Beneficiaries Multipurpose Cooperative (AMSKARBEMCO), found himself in a precarious situation when his cooperative’s interests clashed with those of his employers. The conflict escalated when AMSKARBEMCO entered into an export agreement with another company, leading to threats and harassment from AMSFC management. Baya’s subsequent demotion and the circumstances surrounding it formed the basis of his claim for constructive dismissal.

The legal framework for this case rests on the concept of constructive dismissal, defined as the cessation of work due to an untenable or unreasonable work environment. The Supreme Court, in Verdadero v. Barney Autolines Group of Companies Transport, Inc., stated:

Constructive dismissal exists where there is cessation of work, because ‘continued employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank or a diminution in pay’ and other benefits. Aptly called a dismissal in disguise or an act amounting to dismissal but made to appear as if it were not, constructive dismissal may, likewise, exist if an act of clear discrimination, insensibility, or disdain by an employer becomes so unbearable on the part of the employee that it could foreclose any choice by him except to forego his continued employment.

Central to the Court’s analysis was whether Baya’s demotion was a valid exercise of management prerogative or a retaliatory measure. The Court referenced Peckson v. Robinsons Supermarket Corp., highlighting the employer’s burden to prove that a transfer or demotion is based on legitimate grounds and not a subterfuge to remove an employee.

In case of a constructive dismissal, the employer has the burden of proving that the transfer and demotion of an employee are for valid and legitimate grounds such as genuine business necessity. Particularly, for a transfer not to be considered a constructive dismissal, the employer must be able to show that such transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other benefits. Failure of the employer to overcome this burden of proof, the employee’s demotion shall no doubt be tantamount to unlawful constructive dismissal.

The Court examined the sequence of events leading to Baya’s demotion, emphasizing that these actions occurred before the Agrarian Reform Beneficiaries’ (ARBs) takeover of the banana plantation. This timeline undermined the employer’s claim that Baya’s termination was a result of the land reform program. Moreover, the fact that members of the pro-company cooperative, SAFFPAI, were retained while AMSKARBEMCO members were terminated further suggested discriminatory intent.

Given the strained relations between Baya and his employers, the Court opted for separation pay as an alternative to reinstatement. This approach aligns with the doctrine of strained relations, which recognizes that reinstatement may not be viable when animosity exists between the parties. The Court also upheld the award of moral damages and attorney’s fees, finding that the employer’s actions were tainted with bad faith. These damages served to compensate Baya for the distress caused by the discriminatory and retaliatory actions of AMSFC and DFC.

The merger between DFC and Sumifru (Philippines) Corporation raised the issue of successor liability. The Court, citing Section 80 of the Corporation Code of the Philippines, clarified that the surviving corporation in a merger assumes all the liabilities of the merged corporation.

Section 80. Effects of merger or consolidation. – The merger or consolidation shall have the following effects:

1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation.

Therefore, Sumifru, as the surviving entity, was held liable for DFC’s obligations, including its solidary liability with AMSFC for Baya’s monetary awards. The court has previously stated in Babst v. CA, that “in the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation.”

This case serves as a reminder to employers that demoting employees, especially after instances of harassment and anti-union actions, can be construed as constructive dismissal. It reinforces the principle that employers must act in good faith and avoid actions that create an untenable work environment. The ruling also highlights the importance of upholding employees’ rights to organize and participate in cooperative activities without fear of retaliation.

FAQs

What is constructive dismissal?	Constructive dismissal occurs when an employee resigns due to an intolerable work environment created by the employer, such as demotion or harassment. It is considered an involuntary termination initiated by the employer’s actions.
What was the basis for Baya’s claim of constructive dismissal?	Baya claimed constructive dismissal based on his demotion to a rank-and-file position after being a supervisor, coupled with alleged harassment and pressure to switch loyalties to a pro-company cooperative. He argued these actions made his continued employment untenable.
Why did the NLRC initially rule against Baya?	The NLRC initially ruled against Baya, finding that his termination was due to the cessation of AMSFC’s business operations because of the agrarian reform program, not due to constructive dismissal. However, the Court of Appeals reversed this decision.
What is the doctrine of strained relations?	The doctrine of strained relations suggests that separation pay is an acceptable alternative to reinstatement when the relationship between the employer and employee is so damaged that a harmonious working environment is no longer possible. This was applied in Baya’s case.
What is successor liability in a merger?	Successor liability means that when two companies merge, the surviving company assumes the liabilities and obligations of the merged company. In this case, Sumifru, as the surviving entity, was held liable for DFC’s debts.
What damages were awarded to Baya?	Baya was awarded separation pay, moral damages, and attorney’s fees. The Court deemed these appropriate due to the employer’s bad faith and the need to compensate Baya for the distress caused by the constructive dismissal.
What was the significance of the timeline of events?	The timeline was crucial because the acts constituting constructive dismissal (Baya’s demotion and harassment) occurred before the ARBs’ takeover of the banana plantation. This sequence of events discredited the employer’s defense that the termination was due to the agrarian reform program.
Can employers be held liable for anti-union actions?	Yes, employers can be held liable for actions that discourage or retaliate against employees for participating in union or cooperative activities. Such actions can contribute to a finding of constructive dismissal and result in damages.

This case clarifies the circumstances under which a demotion can be considered constructive dismissal and emphasizes the importance of protecting employees’ rights to organize and participate in cooperative activities. The ruling serves as a caution to employers against actions that may be perceived as retaliatory or discriminatory.

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: SUMIFRU (PHILIPPINES) CORPORATION vs. BERNABE BAYA, G.R. No. 188269, April 17, 2017