Temporibus Inserviendum:* IN TERMINATION DISPUTES, THE REGULAR COURTS FOR CORPORATE OFFICERS AND THE NATIONAL LABOR RELATIONS COMMISSION FOR NON-CORPORATE OFFICERS

                                     Francis V. Sobreviñas**

November 22, 2013 marked the 100^th birth anniversary of Cecilia Muñoz Palma, the first woman associate justice of the Supreme Court of the Philippines, who is best remembered for questioning the imposition of martial law and denouncing human rights violations. Madam Justice Palma later on became President of the Constitutional Commission and, through her leadership and wise counsel, the Commission succeeded in drafting a constitution that is the embodiment of the ideals and aspirations of the sovereign Filipino people: pro-people, pro-country and pro-God. She also wrote the decision in People v. Mariano[1]  wherein the etymology of the term “jurisdiction” was discussed by the Supreme Court in the following manner:

This essay will endeavor to discuss the issue of jurisdiction in termination disputes particularly insofar as it concerns high ranking officers of a corporation, partnership or association. Furthermore, it will examine the distinction between an “ordinary” or “non-corporate” officer vis-à-vis a “corporate officer” that is crucial in determining whether the controversy is an intra-corporate dispute or one that arises from employer-employee relationship.

Presidential Decree No. 902-A (PD 902-A)
in relation to Republic Act No. 8799 (RA 8799)
and Article 217 of the Labor Code

Under Section 5 of PD 902-A, intra-corporate controversies are those that arise out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity. It also includes controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships or associations.

We reproduce below Section 5 of PD 902-A in extenso:

On July 19, 2000, the President of the Philippines approved RA 8799, otherwise known as the Securities Regulation Code, and this law transferred the SEC’s jurisdiction over all intra-corporate disputes to the Regional Trial Court (RTC). We find this in Section 5.2 of RA 8799, to wit:

Article 217 of the Labor Code

As a rule, the illegal termination of an officer or other employee of a private employer falls under the jurisdiction of the Labor Arbiter of the National Labor Relations Commission (NLRC). This is so provided in Article 217 (a) 2 and 4:

Who are considered
“corporate officers”?

The rule is that officers not named in the by-laws are not considered corporate officers. In Easycall Communications Phil., Inc. v. King,[3] the Supreme Court said 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 occupies no office and generally is employed not by the action of the directors or stockholders but the managing officer of the corporation who also determines the compensation to be paid to such employee. The respondent in Easycall was appointed vice-president for nationwide expansion by petitioner’s general manager, not by the board of directors. It was also the general manager who determined the compensation package of respondent. Thus, respondent was declared to be an employee, not a corporate officer. For this reason, the jurisdiction of the NLRC over the dispute was upheld.

Earlier, in Nacpil v. Intercontinental Broadcasting Corp.,[4] the petitioner argued that he was not a corporate officer of respondent IBC but an employee thereof since he had not been elected nor appointed as Comptroller and Assistant Manager by IBC’s Board of Directors. He pointed out that he had actually been appointed as such by the Company’s General Manager. In support of his argument, petitioner underscored the fact that IBC’s by-laws do not include the position of Comptroller in its roster of corporate officers. He, therefore, contended that his dismissal was a controversy falling within the jurisdiction of the NLRC.

In rejecting petitioner’s argument, the Supreme Court declared that even assuming that he was appointed by the General Manager, such appointment was subsequently approved by the Board of Directors of IBC. That the position of Controller is not expressly mentioned among the officers of IBC in its by-laws is of no moment because the Board of Directors of IBC is empowered under Section 25 of the Corporation Code and under the Corporation’s by-laws to appoint such other officers as it may deem necessary. Consequently, since petitioner’s appointment as Comptroller required the approval and formal action of IBC’s Board of Directors to become valid, it is clear that petitioner is a corporate officer whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5 (c) of PD 902-A (now by the RTC under RA 8799) which includes and covers controversies involving both the election and appointment of corporate directors, trustees, officers, and managers. Had petitioner been an ordinary employee, such board action would not have been required.

In Nacpil, petitioner also argued that the nature of his functions is recommendatory thereby making him a mere managerial officer. But the Supreme Court disagreed even as it held that the relationship of a person to a corporation, whether as officer or agent or employee is not determined by the nature of the services rendered but by the incidents of the relationship as they actually exist.

Then came the case of Matling Industrial and Commercial Corp. v. Coros,[5] involving petitioner’s Vice President for Finance and Administration, who sued the petitioner for illegal dismissal  before the Labor Arbiter of the NLRC. Petitioner moved to dismiss the complaint, raising the ground that the action pertained to the jurisdiction of the SEC (at that time) as the respondent was a member of petitioner’s Board of Directors aside from being its Vice-President for Finance and Administration before his termination. The Labor Arbiter granted the petitioner’s motion to dismiss but the NLRC reversed, saying that the complaint for illegal dismissal was properly cognizable by the Labor Arbiter, not by the SEC, because he was not a corporate officer, even though high ranking, not being among the positions listed in petitioner’s Constitution and By-Laws. The Court of Appeals sustained the NLRC.

The case then reached the Supreme Court which was asked to  resolve whether or not the respondent was a corporate officer of petitioner Matling. The resolution of the issue would decide whether the Labor Arbiter or the RTC had jurisdiction over the complaint for illegal dismissal.

Before the High Tribunal, petitioner Matling asserted that the position of Vice President for Finance and Administration was a corporate office, having been created by Matling’s President pursuant to its by-laws. Petitioner further contended that the power to create corporate offices and to appoint the individuals to assume the offices was delegated by the Board of Directors to its President through a particular by-law and that any office the President created, like the position of respondent, was as valid and effective a creation as that made by the Board of Directors, making the office a corporate office. In justification, petitioner cited Tabang v. NLRC,[6] which held that “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 officers as may be necessary.”

Respondent countered, among others, that petitioner’s by-laws did not list his position, namely, Vice-President for Finance and Administration, as one of the corporate offices and that the corporate officers contemplated in the phrase “and such other officers as may be provided for in the by-laws” found in Section 25 of the Corporation Code should be clearly and expressly stated in the by-laws.

The Supreme Court ruled in favor of respondent and held that in the context of PD 902-A, corporate officers are those officers of a corporation who are given that character either by the Corporation Code or by the Corporation’s By-Laws. Section 25 of the Corporation Code clearly enumerates who these corporate officers are: (1) President; (2) Secretary; (3) Treasurer; and (4) such other officers as may be provided for by the by-laws.[7] The phrase “such other officers as may be provided for in the by-laws “was clarified by the Court in Matling.[8] Speaking through Mr. Justice Lucas P. Bersamin, the Court declared:

The Court, in Matling, likewise abandoned its earlier rulings in Tabang[11] and Nacpil[12], saying:

Subsequently, in Marc II Marketing v. Joson,[15] which involved the termination of a General Manager,  the Court confirmed and reiterated that the interpretation of Section 25 of the Corporation Code laid down in Matling safeguards the constitutionally enshrined right of every employee to security of tenure. To allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering the board of directors to do so can result in the circumvention of that constitutionally well-protected right. Hence, it restated the ruling in Matling that the Board of Directors has no power to create other corporate offices without first amending the corporate by-laws so as to include therein the newly created corporate office. Though the Board of Directors may create appointive positions other than the positions of corporate officers, the persons occupying such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. In other words, unless and until the petitioner’s by-laws are amended for the inclusion of General Manager in the list of its corporate officers, such position cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code.[16]

By way of conclusion, while a corporate officer may be ousted from office at will, i.e., for a good reason, a poor reason, or no reason at all, an ordinary or non-corporate employee, however, may be terminated solely for just or authorized cause. Only last month, in  an en banc ruling in SME Bank, Inc. v. de Guzman[17] our Supreme Court reminded everyone that security of tenure is a constitutionally guaranteed right and that employees may not be terminated from their employment except for just or authorized causes under the Labor Code and other pertinent laws. Indeed, in termination cases, the burden of proving just and valid cause for dismissing an employee from his employment rests upon the employer. The latter’s failure to discharge that burden would necessarily result in a finding that the dismissal is unjustified.[18] But, as already seen, any question relating to an intra-corporate dispute can be resolved only by the regular court. E contra, a case arising out of or in the course of employer-employee relationship should be decided only by the appropriate labor agency. To determine, therefore, the issue of jurisdiction, i.e., whether the case belongs to the RTC or the NLRC, the status or relationship of the parties and the nature of the question that is the subject of the controversy must be closely examined.