Supreme Court, en banc: Forced resignations are illegal

Bank mergers and acquisitions can be a messy business and it may end up in a nasty, long and expensive legal battle. But if you have an expert Human Resource professional and an experienced lawyer, you all can save yourselves all the troubles. A sale of a bank, through a purchase of majority stock holdings, is not a just and legal cause to force incumbent bank employees to resign, even if the buyers required the sellers to terminate the services of all existing bank personnel.

The fifteen-member Supreme Court last month ordered payment of full backwages, separation pay in lieu of reinstatement, and moral damages, exemplary damages and attorney's fees to all employees of a bank, who were compelled to resign by the previous owners, when a bank was purchased in 2001 by new controlling stockholders.

This was in SME BANK Inc. (GR 184517 and 186641) decided by the court unanimously last October 8, with no less than Chief Justice Ma. Lourdes Sereno writing the decision. The court ordered the bank to pay full backwages, and that could run into multi-millions, considering that wages have to be paid from 2001, when they were ousted up to 2013. Their salaries and all allowances and benefits for twelve years (multiplied by 13 to include the 13th month pay) or 156 months could be a whopping amount in backwages alone. Assuming a salary of a hundred thousand a month, that would be P15.6 million for each personnel.

Then, separation pay has to be paid at the rate of a month's pay for every year of service or another P3 million. This is a grand windfall for the employees of about P18 million each plus 12 percent interests and 10 percent attorney's fees, all tax-free. This is a rainmaker for any lawyer. But this is a kind of decision that can lead to bankruptcy.

Sometime in 2001, the bank suffered some financial difficulties. Its owners offered to sell it to another group through a stock purchase sale. The buyers agreed on the condition that all personnel should be dismissed first. The sellers forthwith required all employees to retire or resign, with a commitment that the new owners would rehire them in no time if they applied. They did apply but only one was accepted. They thus filed a case of illegal dismissal. In 2004, the Labor Arbiter decided in favor of the bank ruling that the new owners cannot be compelled to absorb the personnel of the previous owners. In 2006, the NLRC reversed the ruling, holding that a mere change of stockholders did not change the legal personality of the employer bank. Payment of full backwages and separation pay was ordered, with moral and exemplary damages and attorney's fees.

The Court of Appeals affirmed the NLRC ruling in 2008, with a slight modification that the bank officials should not be held personally liable for their acts of dismissing the personnel because they did it as a duty. On October 8, 2013, or less than a month ago, the full court ruled that the NLRC was correct in holding both the bank and the bank officials should be held liable because the dismissal were effected fraudulently and in bad faith. The Supreme Court gave us a long lecture on many fundamental principles in Labor Law. Law students and legal practitioners better download a copy of this magnum opus of a legal and jurisprudential gem. There are simply too many basic nuggets of legal wisdom that we in the bar, the bench and the academe should not ignore.

First, resignations that are imposed are invalid. They were required by the old owners with a promise that the personnel would be rehired.

Even if they were couched in many words of gratitude, such language could not reverse the fact that the personnel had no intention to give up their jobs. The element of free will or consent freely given was not present. Citing the case of SMC vs. NLRC (354 Phil 815, 1998), the court made it clear that involuntary resignation or retirement is illegal. The court noted that there was neither just cause under Article 282 nor authorized cause under Article 283. The employees were not afforded due process. They were simply asked to submit their courtesy resignations. They were promised to be accepted by the new owners.

The court stressed that there was no closure of the company. Only the owners have changed, this is a case of a corporate acquisition. This column observes that when BPI bought Far East Bank and when BDO purchased Equitable Bank, those were mergers. But the court earlier held in the BPI case (GR 164301, 19 Oct 2011) that the workers should not be left in a "legal limbo''. In the SME case, the court bewailed the employer's violation of the employees' constitutionally guaranteed right to security of tenure. Our take on this is simple: The owners apparently did not consult the experts. They ended up with a messy legal imbroglio. The new owners are now left holding the bag. We should all learn from this monumental faux pas. The law may be hard, but it is the law. It is always better to be careful than to be sorry later.